Eurozone domestic economy fired on all cylinders in Q1 - ING

Bert Colijn, Senior Economist at ING, notes that the Eurozone economy is confirmed to have grown at 0.6% q-o-q in Q1.

Key Quotes

“Today’s final release of the GDP data confirms that the surprisingly strong growth was mainly fuelled by improving domestic demand. The large stock market declines and worries about growth in China and the US that characterised the first months of the year did not have a strong effect on growth as the Eurozone economy profited from more people with jobs, the exceptionally low oil price and a low interest rate environment.

Household consumption improved by 0.6%, government expenditure by 0.4%, and investments even grew by 0.8%. The improvements in investments are particularly encouraging, as investments have lagged GDP growth for quite some time now. A pickup was to be expected given the low interest rate environment and loosening credit conditions, but uncertainty surrounding growth prospects had resulted in cautious investors. The fact that both household consumption and investments are improving is helping a more sustainable recovery in the Eurozone.

Net exports continued to be a drag on growth in Q1. This comes as no surprise given the problems surrounding the Eurozone’s main trade partners. US, China, UK, Turkey and Russia were all suffering from weakness in the domestic economy, currency strength and political uncertainty, which resulted in a slowdown in export growth to 0.4% q-o-q. Imports held up at 0.7% q-o-q, resulting in a drag on net exports. This weakness in exports is likely to continue in the coming months, as the global economy continues to suffer from uncertainty surrounding some of its major economies.

The current quarter shows some more headwinds. Unemployment declines have become smaller in and the oil price has surged in the past months. Together with low consumer confidence, this likely results in somewhat weaker household spending in Q2. Without strengthening exports, it seems likely that the pace of growth will decline somewhat this quarter, but a moderate pace should be maintained.”