Headline annual inflation in the Eurozone this month matched the March result as expected, but economic growth has outpaced forecasts, which dumps mixed input into the decision trees at the self-described "data-dependent" European Central Bank.
After three straight declines, benchmark consumer price growth in the euro area held steady at an annual rate of 2.4%, according to preliminary data from the EU statistics office Eurostat, putting this month’s reading in-line with estimates. The monthly rate slipped to 0.6%, which matched forecasts and was below March’s 0.8%.
Eurostat said core inflation continued to slow, easing to 2.7% y/y, which fell short of the market prediction of 2.6% and the 2.9% mark set last month.
As prices hovered or declined, GDP in the euro area last quarter grew 0.3% versus the final three months of 2023, the office announced. This was well above the market expectation of 0.1% and the downwardly revised contraction of 0.1% in Q4 of last year. Eurostat had previously reported a flat reading for the final quarter of 2023, so the downgrade put the Eurozone in a technical recession in the second half of last year with a 0.1% decline in Q3.
EUR/USD moved higher on the news. The yield on the German 10-year government bond increased initially following the announcements.
The latest bout of construction near ECB headquarters in Frankfurt as rate-setters there craft their blueprint for monetary policy (Photo: Culp)
ECB still on track for cuts – analysts
The unchanged reading for consumer price growth and the unexpectedly strong GDP number are unlikely to impact the plans of monetary policymakers at the European Central Bank, who have all but guaranteed an interest rate cut in June. Some observers have noted that the decline in Eurozone services inflation to an annual rate of 3.7% from 4.0% further solidifies support for lower borrowing rates.
“Today’s stronger-than-expected Q1 GDP data means the Eurozone has come out of recession but with core and services inflation both declining in April, this will not prevent the ECB from starting its easing cycle in June,” wrote Andrew Kenningham from Capital Economics. “While the Eurozone’s mild recession appears to be over, we think the economy will expand at a only a moderate pace over the rest of the year.”
On the inflation front, Belgium led the way with an annual EU-harmonised rate of 4.9%, Eurostat reported. Other than Croatia at 4.7%, the rest of the euro area countries reporting said consumer price growth was below 4%.
The four largest economies in the currency union sent mixed signals on price growth, according to initial data. Listed by size, their results were as follows: Germany said EU-harmonised inflation rose a tenth to 2.4%, France reported an unchanged rate of 2.4%, Italy announced a two-tenths decline to 1.0%, and Spain said it experienced a one-tenth rise to 3.4%.
Growth also varied among the big four, according to Tuesday's preliminary data. Germany said its economy expanded 0.2% on the quarter and in-line with estimates, a rebound from -0.2% in Q4. France also announced a 0.2% improvement following a 0.1% rise, which also was the forecast. Italy reported a better-than-expected jump of 0.3% from 0.1%, the market consensus. Spain said its economy grew 0.7% versus the same reading last quarter and the projection of 0.4%.
“Eurozone GDP grew by 0.3% in the first quarter, and that’s the strongest growth since the third quarter of 2022 when the energy crisis started,” noted Bert Colijn from ING. “While there is no vigorous rebound in the making, the Eurozone economy has clearly entered a better phase with economic recovery, low unemployment and more moderate inflation.”
But this time it’s different, he explained. “Unlike after the pandemic, there is no vigorous rebound in the making, as the economy still suffers from weak global demand, real wages have not recovered to 2021 levels, and it is still adjusting to higher interest rates.”
- HICP holds at 2.4%
- Core rate slips less than expected
- GDP growth beats estimates
- Eurozone in recession in H2 ‘23
- Weak recovery likely, analysts note
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
30 April 2024 | 09:50 GMT
Headline annual inflation in the Eurozone this month matched the March result as expected, but economic growth has outpaced forecasts, which dumps mixed input into the decision trees at the self-described "data-dependent" European Central Bank.
After three straight declines, benchmark consumer price growth in the euro area held steady at an annual rate of 2.4%, according to preliminary data from the EU statistics office Eurostat, putting this month’s reading in-line with estimates. The monthly rate slipped to 0.6%, which matched forecasts and was below March’s 0.8%.
Eurostat said core inflation continued to slow, easing to 2.7% y/y, which fell short of the market prediction of 2.6% and the 2.9% mark set last month.
As prices hovered or declined, GDP in the euro area last quarter grew 0.3% versus the final three months of 2023, the office announced. This was well above the market expectation of 0.1% and the downwardly revised contraction of 0.1% in Q4 of last year. Eurostat had previously reported a flat reading for the final quarter of 2023, so the downgrade put the Eurozone in a technical recession in the second half of last year with a 0.1% decline in Q3.
EUR/USD moved higher on the news. The yield on the German 10-year government bond increased initially following the announcements.
ECB still on track for cuts – analysts
The unchanged reading for consumer price growth and the unexpectedly strong GDP number are unlikely to impact the plans of monetary policymakers at the European Central Bank, who have all but guaranteed an interest rate cut in June. Some observers have noted that the decline in Eurozone services inflation to an annual rate of 3.7% from 4.0% further solidifies support for lower borrowing rates.
“Today’s stronger-than-expected Q1 GDP data means the Eurozone has come out of recession but with core and services inflation both declining in April, this will not prevent the ECB from starting its easing cycle in June,” wrote Andrew Kenningham from Capital Economics. “While the Eurozone’s mild recession appears to be over, we think the economy will expand at a only a moderate pace over the rest of the year.”
On the inflation front, Belgium led the way with an annual EU-harmonised rate of 4.9%, Eurostat reported. Other than Croatia at 4.7%, the rest of the euro area countries reporting said consumer price growth was below 4%.
The four largest economies in the currency union sent mixed signals on price growth, according to initial data. Listed by size, their results were as follows: Germany said EU-harmonised inflation rose a tenth to 2.4%, France reported an unchanged rate of 2.4%, Italy announced a two-tenths decline to 1.0%, and Spain said it experienced a one-tenth rise to 3.4%.
Growth also varied among the big four, according to Tuesday's preliminary data. Germany said its economy expanded 0.2% on the quarter and in-line with estimates, a rebound from -0.2% in Q4. France also announced a 0.2% improvement following a 0.1% rise, which also was the forecast. Italy reported a better-than-expected jump of 0.3% from 0.1%, the market consensus. Spain said its economy grew 0.7% versus the same reading last quarter and the projection of 0.4%.
“Eurozone GDP grew by 0.3% in the first quarter, and that’s the strongest growth since the third quarter of 2022 when the energy crisis started,” noted Bert Colijn from ING. “While there is no vigorous rebound in the making, the Eurozone economy has clearly entered a better phase with economic recovery, low unemployment and more moderate inflation.”
But this time it’s different, he explained. “Unlike after the pandemic, there is no vigorous rebound in the making, as the economy still suffers from weak global demand, real wages have not recovered to 2021 levels, and it is still adjusting to higher interest rates.”
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