Euroland growth rate surprisingly doubled – uncertainty remains

On the heels of the positive growth surprise in the USA, the Eurozone has now also reported a good quarterly result. The economic cooling feared at the beginning of the year has not materialised. Euroland economic output actually climbed 0.4% in the first quarter of 2019, or twice as quickly as in Q4 2018. That said, an unfavourable climate resulting from trade disputes, an ebbing Chinese economy, and the ongoing weak sales by the car industry had given justified cause for concern. We wait with bated breath to see how the German economy has performed, which has been hit in particular by dampening industrial sentiment. Here, patience is called for, as the data on German gross domestic product (GDP) do not come out until 15 May. The data released to date do point to the possibility of a pleasant surprise in this regard.

What has already been published, amongst other data, is the quarterly figures for France. There, growth has steadied at 0.3%. In view of the ongoing “Yellow Vest” protests, this can definitely be considered a solid performance. It is gratifying that private demand is increasingly recovering. In this regard, the tax relief President Emmanuel Macron negotiated in December looks to have favourably influenced the figures. By contrast, net exports made a negative contribution of late.

Italy, as Euroland’s third-largest member state, posted 0.2% growth and thus managed to climb out of the red. However, the economy’s pace remains lodged below the Eurozone average. Only a few weeks ago, the populist government conceded that economic growth in 2019 would presumably turn out far weaker than hitherto assumed. It thereupon defended its endeavours to stimulate the domestic economy by initiating expensive welfare projects.

By contrast, there seems to be no holding back when it comes to Spanish economic growth. The economy on the Iberian Peninsula recently reported a strong surge of 0.7%, thus topping what was already a prime performance three months earlier. Here, the unprecedented increase in the minimum wage at the beginning of the year has likely made a decisive contribution to the pace of economic growth picking up. Moreover, the important tourism industry gained clear momentum in the first quarter of 2019, having temporarily been caught in a weak patch.

Yesterday, Belgium already kicked off the quarterly reporting season for economic growth in the EMU. There, growth halved to 0.2%, which was not much of a surprise as a general strike had brought the economy almost to a complete halt in the middle of February. Austria has also published a flash estimate, signalling growth steadying at a moderate 0.3%.

Despite the good quarterly data for Euroland, uncertainty remains for the time being. This is suggested by the first sentiment indicators for the second quarter, which suggest that the economic performance will be dampened. Major negative factors could in fact destabilise growth in the short term. They include, amongst others, an expansion of trade disputes between the USA and the EU, or risks in the wake of possible further “Brexit” turbulence. Should these uncertainties prove unfounded, we can continue to expect Euroland to achieve a modest growth rate of 1.2% for the year 2019 as a whole.

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