Stockholm (Ekonamik) – This week saw the publication of estimates of the two most important macroeconomic variables for the Eurozone: GDP growth and consumer price inflation. The latest figures both beat market expectations, suggesting the bloc’s economy is doing better than what was implied by recent PMI data.
The eurozone and the EU28, as a whole, grew by 1.2% and 1.5% in the first quarter of 2019, compared to its level in the first quarter of 2018, constant from the last quarter of 2018, according to advance estimates published by Eurostat. The advance estimates do not include country-specific data. On a quarterly basis, GDP growth was up by 0.4% and 0.5%, for the eurozone and for the EU28, up from 0.2% and 0.4%, respectively. The figures pale in comparison to the bloc’s performance in the same period of 2019, for which Eurostat reported year-on-year growth of 2.5% and 2.4%, respectively.
Quarter-on-quarter figures were somewhat above expectations. Ahead of the figures being published, Nadia Gharbi, Economist at Pictet Wealth Management, commented that “the advance estimate of Q1 GDP growth in the euro area is likely to surprise positively and be above what is suggested by PMI surveys (0.2% q-o-q), although inventories remain a key uncertainty. Overall, at this stage, we continue to see euro area GDP expanding by 1.4% in 2019, but with risks tilted to the downside.”
IHS-Markit also published Manufacturing PMI figures below 50, consistent with an economic contraction of the Eurozone. Nevertheless, the figures had improved somewhat, increasing from 47.5 in March to 47.9. Of the countries surveyed for the composition of this index, Greece, Ireland, the Netherlands, Spain and France recorded Manufacturing PMI estimates of 50 or above, while Austria, Italy and Germany recorded estimates below. The press release highlighted the continued “marked fall in new orders” as a driver of the underperformance. Germany was also reported as the country with the most pronounced slowdown while Greece was seen as to expands at a 19-year peak.
Euro-area consumer price inflation rose from 1.4% in March to 1.7% in April, according to Eurostat’s first flash estimate. Market expectations were of 1.6% inflation. The main sectors driving growth in consumer prices were energy and services, followed by food, alcohol and tobacco. At the same time last year, inflation was 1.4%, up from 1.1% in March 2018. At the time, food, alcohol and tobacco had been the category of consumer goods experiencing the most growth, followed by energy prices and services.
“The recent rise in oil prices is pushing up inflation now, but base effects from energy prices are still going to push inflation down over the coming months with headline inflation moving further away from the ECB’s target until the end of 2020,” commented Bert Colijn Senior Economist for the Eurozone at ING. “The ECB is unlikely to bat an eyelid towards March and April fluctuations, but may still be confused by the recent signals about growth and inflation. The Q1 growth figures were surprisingly strong, but recent surveys indicate new orders continue to come in weak. With selling price expectations falling, the ECB won’t be too optimistic in how the pick up in growth in Q1 will translate into price growth, but will eagerly wait for more evidence ahead of the June meeting,” the Senior Economist concluded.
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