Euro area economic growth edged a smidgen higher in the first quarter as Germany flirted with recession.
The EU statistics office Eurostat said its initial estimate for first-quarter GDP growth in the single-currency area increased to 0.1% versus the flat reading from the previous three months. But the indicator fell short of the 0.2% market estimate and is subject to at least two more possible revisions.
Compared with the first three months of 2022, the Eurozone economy grew 1.3% last quarter.
“More resilient than expected is clearly one label to put on the Eurozone’s economic performance,” wrote Carsten Brzeski, ING’s head of macroeconomics, noting that the euro area “has now been able to avoid what a few months ago was probably the best predicted recession ever.” He cited warmer winter weather, lower wholesale energy prices, China’s reopening and fiscal stimulus as key drivers behind the result.
“However, there is no reason for complacency. First of all, the growth performance is anything but homogenous.” He noted that some of the divergence in quarterly growth between countries – with Ireland at -2.7% and Portugal at 1.6% – could be the result of varying time lags for fiscal stimulus and energy price caps. “This divergence could also be the start of a more structural rebalancing of the Eurozone economy as Germany’s economic business model is clearly the most affected by higher energy prices, energy transition, and global trade tensions.”
Germany limps along
The weaker-than-expected quarterly increase in the euro area followed Germany’s announcement earlier Friday morning that its initial GDP growth estimate for the period was zilch. The 0.0% reading fell short of the market forecast of 0.2% and came after a downwardly revised -0.5% result for the final three months of 2022, so any adjustment that decreases last quarter’s number would put the world’s fourth-largest economy in a technical recession for the past six months.
EUR/USD fell below 1.10 after the publication of the German data and moved sideways following the release of the Eurozone numbers .
France, the euro area’s second largest economy, said its preliminary reading for economic growth grew to 0.2% in the first quarter from 0.1% in the previous three months, a number in line with estimates.
Italy, the Eurozone’s third-largest economy, reported an initial growth estimate of 0.5% for Q1, a mark well above the market prediction of of 0.2% and -0.1% in the previous period.
Spain said its growth also improved, with the preliminary reading coming in at 0.5%, which outpaced the 0.3% market forecast and 0.4% in Q4 2022.
How data-dependent is the ECB?
Before the release of the GDP data, analysts were split on whether the European Central Bank will raise its key interest rates 25 or 50 basis points next week, with the market leaning toward the former. That faction may have gathered even more support following Friday’s numbers, especially with Germany only a downward revision away from recession.
More impetus for rate setters is due Tuesday, with Eurostat scheduled to release flash April inflation data for the currency area at 09:00 GMT.
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- Quarterly increase falls short of estimate
- EUR/USD weakens after German growth disappoints
- Other major EZ economies improve in-line or better
- Irish GDP plummets 2.7% from previous quarter
- Slack growth could undercut ECB rate hike plans
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
28 April 2023 | 09:55 GMT
Euro area economic growth edged a smidgen higher in the first quarter as Germany flirted with recession.
The EU statistics office Eurostat said its initial estimate for first-quarter GDP growth in the single-currency area increased to 0.1% versus the flat reading from the previous three months. But the indicator fell short of the 0.2% market estimate and is subject to at least two more possible revisions.
Compared with the first three months of 2022, the Eurozone economy grew 1.3% last quarter.
“More resilient than expected is clearly one label to put on the Eurozone’s economic performance,” wrote Carsten Brzeski, ING’s head of macroeconomics, noting that the euro area “has now been able to avoid what a few months ago was probably the best predicted recession ever.” He cited warmer winter weather, lower wholesale energy prices, China’s reopening and fiscal stimulus as key drivers behind the result.
“However, there is no reason for complacency. First of all, the growth performance is anything but homogenous.” He noted that some of the divergence in quarterly growth between countries – with Ireland at -2.7% and Portugal at 1.6% – could be the result of varying time lags for fiscal stimulus and energy price caps. “This divergence could also be the start of a more structural rebalancing of the Eurozone economy as Germany’s economic business model is clearly the most affected by higher energy prices, energy transition, and global trade tensions.”
Germany limps along
The weaker-than-expected quarterly increase in the euro area followed Germany’s announcement earlier Friday morning that its initial GDP growth estimate for the period was zilch. The 0.0% reading fell short of the market forecast of 0.2% and came after a downwardly revised -0.5% result for the final three months of 2022, so any adjustment that decreases last quarter’s number would put the world’s fourth-largest economy in a technical recession for the past six months.
EUR/USD fell below 1.10 after the publication of the German data and moved sideways following the release of the Eurozone numbers .
France, the euro area’s second largest economy, said its preliminary reading for economic growth grew to 0.2% in the first quarter from 0.1% in the previous three months, a number in line with estimates.
Italy, the Eurozone’s third-largest economy, reported an initial growth estimate of 0.5% for Q1, a mark well above the market prediction of of 0.2% and -0.1% in the previous period.
Spain said its growth also improved, with the preliminary reading coming in at 0.5%, which outpaced the 0.3% market forecast and 0.4% in Q4 2022.
How data-dependent is the ECB?
Before the release of the GDP data, analysts were split on whether the European Central Bank will raise its key interest rates 25 or 50 basis points next week, with the market leaning toward the former. That faction may have gathered even more support following Friday’s numbers, especially with Germany only a downward revision away from recession.
More impetus for rate setters is due Tuesday, with Eurostat scheduled to release flash April inflation data for the currency area at 09:00 GMT.