(Bloomberg) -- The euro zone exited recession as its four top economies drove much speedier growth than expected, though the recent retreat in inflation stalled.

First-quarter gross domestic product increased by 0.3% from the previous three months — the strongest pace in 1 1/2 years. A separate release showed consumer prices rose an annual 2.4% in April, matching March’s pace and in line with analyst estimates.

The prospects for the 20-nation bloc are brightening after elevated inflation, rising interest rates and weak global demand sank output. Helping the revival is Germany, which is emerging from a similar malaise led by its industrial sector. June’s likely start of monetary easing by the European Central Bank should also provide a shot in the arm.

After shrinking in the latter half of 2023, the first quarter’s expansion came as Germany, France, Italy and Spain all exceeded analyst expectations. The ECB sees a recovery over the course of the year as inflation abates, household incomes rebound and foreign demand strengthens, predicting growth of 0.6% in 2024 and 1.5% in 2025.

Indeed, recent data indeed indicate the economy may have turned the corner – particularly as Germany overcomes its own problems. Concerns have not been fully vanquished, however: April saw an unexpected decline in sentiment.

Inflation, meanwhile, has been approaching 2%, with officials more confident that it’s on track to meet that target – opening the door for a rate cut in June. They’ve been worrying about sticky services inflation, which eased to 3.7% in April after five months of staying unchanged at 4%.

Core pressures as a whole, which exclude volatile items such as food and energy, also moderated this month — to 2.7% from 2.9%, coming in a touch higher than anticipated.

What Bloomberg Economics Says...

“This moderation in services-price inflation is what the ECB needs to see to cut rates. Absent a shocker on wages, or a surge in commodity costs, this will happen in June. Significantly stronger-than-expected GDP growth shows the economy standing up reasonably well to high rates, adding to the likelihood that the Governing Council will take stock of the data in July and hold borrowing costs steady.”

—Jamie Rush, chief European economist. Click here for full REACT

The data raise confidence that the ECB will reach its goal for price growth, Governing Council member Francois Villeroy de Galhau said, affirming the plan for June.

“The rate of decline will then have to be pragmatic, depending on the inflation outlook beyond the month-to-month results, which may experience some volatility,” he said.

His Austrian counterpart, Robert Holzmann, cautioned against back-to-back reductions in rates, telling Platow Brief that he doesn’t see “any reason why we should take two steps in a row.”

The euro erased earlier losses on the back of that overshoot, outperforming all its Group-of-10 peers except for the dollar. Money-market traders pared rate-cut bets slightly for this year, fully pricing two quarter-point reductions and a 76% chance of a third.

The slowdown in euro-zone inflation may resume in May, according to a Bloomberg Economics nowcast that predicts a reading of 2.3%.

Here’s a look at the individual countries reporting Tuesday:

Netherlands inflation (6:30 a.m.)

Dutch consumer-price gains slowed to 2.6% from a year ago in April — down from 3.1% in March.

The result was in line with the advance estimated by economists in a Bloomberg survey. The moderation will encourage ECB policymakers pushing for reductions in borrowing costs.

France GDP (7:30 a.m.)

Sluggish growth in France has translated into broader difficulties for Macron, with disappointing tax revenue undermining his efforts to repair public finances and bring down unemployment. 

Tuesday’s data give the government some reason for optimism, as investment rebounded in the first quarter after a contraction at the end of 2023. 

Moreover, consumer-spending growth accelerated over the same period. A separate publication showed a 0.4% increase in March alone, while economists had expected only a 0.2% expansion from February. 

The Bank of France sees economic growth quickening further later in the year and in 2025 as households benefit from disinflation. In the short term, though, there are few signs of an imminent improvement with both consumer and business confidence declining.

France’s Le Maire (7:40 a.m.)

The improvement in first-quarter GDP shows President Emmanuel Macron’s strategy is paying off, according to Finance Minister Bruno Le Maire. 

After falling short of budget deficit-reduction targets due in part to weaker economic output, some opposition parties are calling for a new fiscal plan that could precipitate a vote of no-confidence to bring down the government. France is also under pressure from a series of reviews by credit-rating companies, though both Moody’s Ratings and Fitch Ratings reiterated their views last week.

“To all those who want people to believe that our economy is at a standstill, the facts are stubborn: French growth is progressing,” Le Maire said in a message to the press.

Lithuania GDP (8 a.m.)

The economy expanded 0.8% in the first quarter as a plunge in inflation to 0% from 20% a year ago buoyed household consumption, and manufacturing and transport also improved.

After contracting last year, GDP is slowly recovering thanks to rising construction output — especially on infrastructure projects. Growth is expected to accelerate further in the second half of 2024 with consumer sentiment that’s higher than anywhere else in the European Union set to drive retail sales and domestic consumption in the Baltic country.

Bloomberg Economics on French GDP (8:26 a.m.)

Economist Eleonora Mavroeidi:

 “The French economy grew modestly in the first quarter of 2024, with domestic demand leading the way. This was supported by increased household demand and a rebound in business investment. Overall, this suggests the economy is picking up pace slowly and adds some upside risks to our forecast for growth to gather momentum in 2024.”

• For full REACT, click here

France inflation (8:45 a.m.)

Inflation came in stronger than expected, although at a pace that’s unlikely to derail the ECB’s planned interest-rate cut at its next meeting.

April consumer prices were up 2.4% from a year ago, having increased by the same amount the previous month, Insee said. Economists in a Bloomberg survey had predicted a slowdown to 2.2%. 

While France’s provisional readings don’t contain an estimate of the underlying pressures that will be key as the ECB determines how many times to reduce borrowing costs this year, Insee said gains in services prices were also stable at 3% in April.

The government is counting on softer inflation to boost real wages and spur the economy beyond a period of lackluster growth. The Finance Ministry has also said declining rates will boost borrowing and investment.

Spain GDP (9 a.m.)

Output expanded 0.7% in the first quarter — matching the previous period’s revised 0.7% advance and notably above the 0.4% that analysts expected, according to state statistics agency INE. The growth spurt was driven largely by investment.

Europe’s south is benefiting from a post-pandemic tourism boom, roaring exports and lower energy costs thanks to renewables and limited reliance on Russian gas. While Spain faces headwinds as fiscal aid enacted to ease the blow of soaring energy costs is slowly phased out, the bulk was rolled over into 2024 and is continuing to underpin GDP.

The numbers come against a stormy political backdrop. Prime Minister Pedro Sanchez announced Monday that he’d be staying on, having earlier said he was considering quitting after a judge opened a case alleging influence-peddling against his wife.

Austria GDP and inflation (9 a.m.)

The economy expanded for the first time in a year between January and March, with GDP growing 0.2% from the previous quarter, fueled by household spending.

The country, which faces general elections later this year, has recently been a laggard. It shrank in 2023, and this year’s projected rebound of 0.4% is just half the IMF’s prediction for the euro area as a whole.

Inflation, meanwhile, hasn’t slowed as much as in the rest of the region, though April’s number went in the right direction, weakening to 3.4%.

Bloomberg Economics on French inflation (9:34 a.m.)

Economist Eleonora Mavroeidi:

“Headline inflation in France surprised to the upside in April — we see sticky services inflation as the main culprit. Sticky services inflation across the euro area remains a source of concern for the ECB, and will likely keep policymakers cautious as they start to ease policy in the coming months.”

• For full REACT, click here

Bloomberg Economics on Spanish GDP (9:45 a.m.)

Economist Ana Andrade:

“The Spanish economy started 2024 with a bang. This keeps it on track for another year of impressive growth, after consistently outperforming the wider euro area during the energy crisis and rising interest rates. Investment rebounded and tourism flows helped. We expect more good news ahead, as the rollout of European Union recovery funds picks up and lifts capital spending.”

• For full REACT, click here

Germany unemployment (9:55 a.m.)

Joblessness rose more than forecast in April — hinting at the risks that Europe’s biggest economy faces as it tries to shake off several quarters of stagnation. Unemployment increased by 10,000 compared with the median estimate of 8,000 in a Bloomberg poll.

The jobs market has proved resilient to economic weakness in recent quarters. That’s a key factor behind expectations that consumers will drive a modest recovery this year as incomes rise and inflation cools.

For now, “the labor market still lacks an economic tailwind,” said Daniel Terzenbach, director of regions at the German labor agency. “The spring recovery therefore remains weak. Although the German economy has not gained momentum for two years, the situation on the labor market remains robust.” 

Germany GDP (10 a.m.)

Germany avoided a winter recession with stronger-than-expected growth at the start of the year, supporting the recovery of the region as a whole.

Output rose 0.2% in the first quarter compared with the previous three months, when the economy shrank a revised 0.5%. The outcome exceeded analyst estimates for a gain of 0.1%.

The result will feed expectations that Germany is in for a modest recovery following two years of near-zero growth. Business sentiment has already improved in recent surveys by the Ifo institute and S&P Global, while consumers are getting less pessimistic thanks to rising income expectations.

There’s a stark division between services and manufacturing firms, however. While the former are doing better, factories have lagged behind and may only benefit from a global upswing during the course of the year. On balance, economists expect German GDP to grow by only 0.1% in 2024, though the government foresees a 0.3% increase.

Uncertainty over the economic policies and structural issues are also weighing. Estimates for longer-term potential growth are currently stuck at about 0.5%.

Italy GDP (10 a.m.)

Italy’s economy grew more than anticipated at the start of the year with industry, services and agriculture all showing gains thanks to foreign demand.

GDP increased 0.3% in the three months through March from the previous quarter, when it rose a revised 0.1%, according to Istat. Economists had predicted growth of 0.1%.

The data are good news for Prime Minister Giorgia Meloni’s government, which is counting on the economy to grow 1% this year. That’s much stronger than anticipated by economists, the Bank of Italy or the International Monetary Fund. 

Portugal GDP, inflation (10:30 a.m.)

Economic expansion kept its pace with a 0.7% gain in the first quarter, matching the result for the prior three months. 

The central bank in March raised its 2024 GDP-growth forecast to 2%, citing an improved outlook for private consumption, investment and exports.

Inflation, meanwhile, slowed to 2.3% in April, down from 2.6% in March, the statistics institute said in a separate report.

Bloomberg Economics on Germany GDP (10:35 a.m.)

Economist Martin Ademmer:

“The slight GDP expansion at the beginning of the year might be the starting point for a gradual recovery in the coming quarters. Plagued by cyclical and structural factors, however, the German economy is unlikely to develop great dynamism anytime soon.”

• For full REACT, click here

Bloomberg Economics on Italian GDP (10:44 a.m.)

Economist Simona Delle Chiaie:

“The surprise was driven by a stronger-than-expected contribution from net trade, while domestic demand probably remained subdued. The release might pose some upside risks to our current annual growth forecast, but does not alter the picture of continued weakness in domestic demand, and consumer spending in particular.”

• For full REACT, click here

--With assistance from Milda Seputyte, Alice Gledhill, Marton Eder, Joel Rinneby, Kristian Siedenburg, Barbara Sladkowska, Ainhoa Goyeneche, Giovanni Salzano, Joao Lima and Andrej Sokol (Economist).

(Updates with ECB’s Villeroy, Holzmann starting in eighth paragraph.)

©2024 Bloomberg L.P.