Eurozone Q1 GDP growth outperfomrs US and UK, set to moderate in Q2 - Lloyds

Analysts from Lloyds Bank point out that Eurozone GDP growth outperformed the US and UK in Q1, supported by strong domestic demand while growth is set to moderate in Q2.

Key Quotes:

“Eurozone GDP growth was stronger than initial expectations in Q1, rising by 0.5%q/q, outperforming both the US and the UK. The real level of output is now higher than the peak in early 2008 prior to the global financial crisis.”

“Consumption is expected to remain a key driver of GDP growth this year, while fiscal policy will also be supportive, largely reflecting expenditures related to the refugee crisis. Investment trends are forecast to improve, facilitated by low interest rates, but economic and political uncertainty remains a key constraining factor. The further easing of policy by the ECB in March should support credit growth in the economy, but ongoing pressures on parts of the banking sector to deleverage may persist.”

“Subdued global growth prospects are also likely to constrain export growth, despite the fall in the trade-weighted euro since early 2015. For the year as a whole, we maintain our growth forecast of 1.6% for the eurozone.”

“The ECB had already anticipated the possibility of headline inflation turning negative again and hence will not be greatly surprised by the April CPI outturn. Moreover, ECB President Draghi said that “we have to be patient” in waiting for the impact of policy stimulus measures on inflation. Nevertheless, it will be concerned about the decline in core inflation this year, after previous hopeful signs of revival. Further policy easing by the ECB therefore remains on the cards, but June is likely to be too soon. Without the expected recovery in inflation in the second half of the year, more stimulus measures may yet be announced, possibly in September.”