Eurozone economic growth im­proved as expected in the first quarter as growth in France and Spain accelerated and Italy expanded, offsetting the weak performance of Germany. GDP of the 19-nation bloc expanded 0.4 per cent sequentially in the first quarter, slightly faster than the 0.3 per cent growth seen in the fourth quarter of 2014, flash estimates published last week by Eurostat showed. The growth rate matched economists’ forecasts. A similar rate was last seen in the second quarter of 2013.

The fall in oil prices, weak euro and the European Central Bank’s stimulus underpinned the recovery. Year-on-year, economic growth improved to one per cent, in line with economists’ estimates, from 0.9 per cent in the fourth quarter.

Meanwhile, the Bank of England predicted slower growth for 2015 as it reduced its outlook for the UK to 2.5 per cent from 2.9 per cent predicted last February. The BoE cited lower productivity and sterling’s strength for the lower forecast. It also trimmed its growth outlook for 2016 to 2.6 per cent from 2.9 per cent.

The central bank also confirmed expectations that interest rates may rise in about a year’s time. Mark Carney, the Bank’s governor, said deflation could emerge during the year, but that inflation was expected to pick up notably towards the end of the year. Inflation was nil in March for a second month, well below the bank’s target of two per cent. The figure marks the lowest rate of consumer price index inflation since the data series began in 1988.

Finally, the euro reached a three-month high against the dollar on Thursday, as investors digested strong European growth figures from earlier in the week, coinciding with a continuation of soft US economic data across the Atlantic. The latest evidence came on Wednesday: producer prices in the US fell by 0.4 per cent in April. The release of weaker than expected US inflation data on Thursday bolstered dovish views of a delayed interest rate hike by the Federal Reserve.

The report was compiled by Bank of Valletta plc for general information purposes only.

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