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Eurozone Economy Grows In Q1, Inflation Sets New High

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Eurozone economy grew in the first quarter of the year, while inflation continued to accelerate to set a new record high, presenting a complicated outlook to the European Central Bank that is trying to end stimulus and start raising rates like peers.

Gross domestic product grew 0.2 percent from the fourth quarter of 2021, when the economy expanded 0.3 percent, preliminary estimates from Eurostat showed Friday. Economists had forecast 0.3 percent growth.

Earlier on Friday, official data revealed a 0.2 percent growth in Germany, stagnation in France, growth slowing to 0.3 percent in Spain, and output shrinking 0.2 percent in Italy.

On a year-on-year basis, Eurozone GDP increased 5.0 percent in the first quarter after a 4.7 percent increase in the previous three months. Economists had expected a 5.0 percent increase.

Separate data from Eurostat showed that consumer price inflation accelerated to 7.5 percent in April, a new record, from 7.4 percent in March. That was in line with economists' expectations.

Further, core inflation accelerated sharply to 3.5 percent from 2.9 percent in March. Economists had expected a rise to 3.2 percent.

"With supply chain problems set to last longer and become more severe again due to Chinese lockdowns and the war, expect core inflation to trend higher for most of 2022 at least," ING economist Bert Colijn said.

"This broadening of high inflation is a key concern for the ECB and adds to pressure to act quickly, despite the fact that this inflation continues to be rooted in supply-side issues beyond the control of the central bank."

Energy continued to have the highest annual rate, 38.0 percent in April versus 44.4 percent in March. Prices of food, alcohol & tobacco rose 6.4 percent after a 5.0 percent increase in March.

Non-energy industrial goods prices rose 3.8 percent after a 3.4 percent increase in March. Services costs grew 3.3 percent after a 2.7 percent rise the previous month.

Compared to the previous month, the consumer price index rose 0.6 percent and the core measure climbed 1.1 percent in April. Economists had forecast 1.8 percent and 0.9 percent increases, respectively.

Capital Economics expects the euro area economy to contract in the second quarter due to rising inflation and the impact of the war in Ukraine.

The fallout from the Ukraine war and surging energy prices is set to take an increasing toll on households' real incomes and consumer confidence and also make life difficult for the industrial sector, the research firm's economist Andrew Kenningham said.

"Manufacturers in Germany will take a bigger hit than those in other parts of the euro-zone, but the increase in energy prices will affect the entire region, as will the fall in export demand and business confidence," the economist added.

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