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European Economic Growth Catches Up to U.S.

Last year, the U.S. economy expanded faster than that of the European Union, but the two are now growing at about the same pace (The Wall Street Journal, subscription).

What’s going on: In 2023, the U.S. grew 2.5% while the EU grew by just 0.4%—but data from the first quarter of this year shows the latter matching the former in an annualized growth rate of 1.3%.

  • “The U.S., which opened up faster than other countries from lockdown during the coronavirus outbreak and provided more financial support for households, quickly recovered from the knock to growth caused by the pandemic and delivered a surprisingly strong expansion in 2023.”
  • Europe has taken more time “to get back up to speed,” in part due to Russia’s 2022 invasion of Ukraine, which sent energy prices soaring.

The impact: The European Central Bank yesterday raised its growth forecast for the year to 0.9% from 0.6% and cut its interest rates for the first time in almost five years (The New York Times, subscription).

  • The Federal Reserve, meanwhile, has “played down the prospect of a near-term rate cut, and investors have lowered their expectations for this year.”

Going forward: “[A] flatter landscape may emerge on either side of the Atlantic, with similarly muted growth and similarly strong price rises.”

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