Euro Zone To Expand In The First Quarter

The 16-nation economy is predicted to expand 0.2% in the first quarter after stagnating in the fourth quarter, but recovery is expected to be sluggish this year due to the debt crisis that hit Europe since the end of last year, triggered by Greece which now has the highest sovereign debt in the euro area.

Despite the expected 0.2% growth, it is considered weak as a result of the coldest winter in 14 years which affected construction and weakened consumer spending. However, on the other hand, the improvement in exports may outweigh part of the negative effect of the bad weather conditions.

Exports are showing progress as the euro slid more than 14% since the beginning of the current year on the back of the debt crisis in Greece and other euro area nations.

Services sector resumed expansion to 54.1 and manufacturing climbed to 56.6 in March, where both sectors grew in April at the fastest pace in roughly three years.

Also, many companies announced upbeat earnings in the first quarter; ThyssenKrupp returned to profitability in the first quarter after the recovery in global demand led by Asian economies enhanced demand on European products that became cheaper.

Growth in the euro area was lifted by expansion witnessed in the region's largest economies. According to the previous flash reading, German GDP expanded 0.2% from the revised 0.2%, French GDP reached 0.1% from the revised 0.5%, and Spanish GDP came in at 0.1% from -0.1%.

Annually, the euro area's growth may reach 0.5% similar to the advanced reading. The EU Commission raised its growth forecasts for the euro zone after the improvement seen recently that was reinforced by the rise in exports. The euro area will expand 0.9% this year instead of 0.7%, while growing 1.5% in 2011.

Trichet said in last month that the economy will recover gradually as the economy took advantage of the recovery in global demand, non-standard measures adopted as well as the rebound in exports, but he added that the economy will expand at a moderate pace in 2010 and recovery will be "uneven."

Next week, the ECB will announce June's rate decision, where it is expected to keep interest rate at its low record at 1.00% to boost growth. At the same it started the process of purchasing bonds, while the EU have announced 750 billion euros aid package to help highly indebted economies in the region.

The Commission expressed its worry about the fiscal situation across European members as it forecasts budget deficits to average 6.6% of GDP in 2010 and 6.1% in 2011 which is more than double of the EU's 3% ceiling.