The surprise was not that European growth is speeding up after years of zombie-like performance. The surprise was the source of that growth, which was not the continent's traditional, recession-busting powerhouses – Germany and Britain.
Instead, it was the laggards – France, Italy and Spain – that seemed to have got their acts together as consumers opened their wallets again. These countries' recovery lifted growth within the 19-country euro zone (which excludes Britain) by 0.4 per cent in the first quarter of the year, according to a flash estimate Wednesday from Eurostat, the European Commission's statistics agency. The reading means that the euro zone is outperforming the United States even though there were pockets of weakness, notably Greece, whose economy is back in recession.
In the last quarter of 2014, the euro zone economy expanded by 0.3 per cent.
The question is whether the growth can keep going at a strong clip, chipping away at the region's 11-per-cent jobless rate, or if it was merely the result of cheap oil, the low euro and the European Central Bank's €1.1-trillion quantitative easing program.
The recent surge in oil prices and the 5-per-cent rise in the euro since mid-April could dampen growth in the second quarter and beyond. Recently, Italian Finance Minister Pier Carlo Padoan said there were "already signs that [the favourable conditions] are finishing. We have to exploit this window of opportunity and make the recovery stronger and more sustained."
Some economists said the fairly strong euro zone growth numbers will be bullish for shareholders. "I think it will certainly support the case for stocks and help corporate earnings," said Azad Zangana, senior European economist and strategist at Schroders in London. "As this happens, the quite lofty valuations that we're seeing in equities will start to look more justified."
France – the euro zone's and European Union's second-largest economy, after Germany – was the star performer. Its economy grew by 0.6 per cent in the first quarter, the fastest pace in nearly two years. In the previous quarter, France flat-lined, raising fears that it faced prolonged stagnation, maybe even another recession.
Italy – the euro zone's third-largest economy – also beat expectations, with 0.3-per-cent growth. The figure was terrific news for Prime Minister Matteo Renzi, who last year inherited an economy that had been trapped in recession or zero growth since the 2008 financial crisis. Spain's economy grew by 0.9 per cent.
In the euro zone, the slug, oddly, was Germany, whose gross domestic product rose by only 0.3 per cent in the first quarter, missing forecasts for 0.5-per-cent growth. ING Financial Markets economist Carsten Brzeski said the slowdown in Germany's growth could be blamed in part on the labour market, which "seems to have reached a level of full employment," and industrial production, which "has moved rather horizontally for almost four years."
Britain grew at 0.3 per cent, the same rate as Italy. On Wednesday, the Bank of England cut the 2015 growth forecast to 2.5 per cent from the 2.9-per-cent call it had made three months earlier. It also reduced its 2016 forecast to 2.6 per cent and that of 2017 to 2.4 per cent.
Greece was the standout loser. The country is back in recession, with a 0.2-per-cent fall in GDP in the first quarter, dashing hopes that the worst was over for one of the developed world's hardest-hit economies.
Greece in 2014 had climbed out of its six-year recession, posting growth of 0.8 per cent (though negative growth in the last quarter of 2014). The sinking economy might put more pressure on the radical left Syriza government to accept a new bailout deal to end the standoff with the EU, the ECB and the International Monetary Fund. Syriza, however, might argue that the return to negative growth is more evidence that the harsh austerity demanded by the trio of bailout creditors is doing more harm than good. Indeed, economists at the French bank Société Générale in part credited Spain's recovery to "a pause in austerity."
The ECB will no doubt cite the stronger euro zone GDP numbers as evidence that launching the quantitative easing program early this year was the ideal strategy to jump-start the economy and prevent deflation. Some economists think that Mario Draghi, the ECB president, deserves a lot of credit for the growth, though low oil certainly helped.
"Draghi has thrown the kitchen sink at Europe, and it seems to be beginning to work," said Nancy Curtin, chief investment officer at Close Brothers Asset Management, a British merchant bank. "Already PMI [purchasing managers index] and credit growth are showing decisive improvements. The combination of a lower euro boosting exports, ultra-low borrowing rates, and enhanced liquidity as a result of QE are all helping the economy."
Editor's note: An earlier version of this story stated that the euro zone had 28 member countries. This has been corrected.