Schroders Quickview: Eurozone recovery gathers momentum
Although the eurozone economy remains fragile, today’s GDP data show it has enjoyed a good start to 2015.
13 May 2015
Eurozone growth accelerates but economy still fragile
Activity in the eurozone is growing at its fastest pace since the first quarter of 2014 – a sign that the European recovery is finally gathering momentum.
The eurozone economies in aggregate grew by 0.4% in the first quarter of the year, accelerating from 0.3% growth in the fourth quarter of 2014.
Although the eurozone economy remains fragile overall, it has enjoyed a good start to 2015.
Low inflation is helping to boost the purchasing power of households, while easier lending conditions are helping to support corporates that are seeking to invest.
We forecast eurozone growth to continue at this modest pace, but with measures of spare capacity still suggesting plenty of excess slack, the European Central Bank should keep monetary policy ultra loose for some time.
German GDP slows as imports rise
Surprisingly, Germany was not the star performer in the first quarter.
The German economy grew by 0.3%, compared to 0.7% in the previous quarter and against consensus expectations of 0.5% growth.
While a full breakdown of German GDP figures is not yet available, the German statistics office suggested that domestic demand continued to grow at the start of the year.
It stated that a slowdown in net trade, and in particular a strong rise in imports, was the main cause of the GDP slowdown.
The pickup in imports is a welcome sign that Germany may be rebalancing its economy at long last, which should, in time, benefit the European economy more widely.
France fights back
Meanwhile, France surprised on the upside, growing by 0.6% although the growth in the fourth quarter was revised away (to zero).
Stronger household consumption along with a smaller contraction in investment helped offset a more negative contribution from net trade.
However, most of the upside surprise in the French data was caused by a rise in inventories, which suggests that it will not be maintained in the coming quarters.
Nevertheless, France should continue to grow at a reasonable pace over the rest of this year.
Italy claws its way out of recession
In Italy, the economy is finally out of recession as it grew by 0.3%. It is the first quarter of positive growth since the third quarter of 2013.
Spain, which provided an early estimate recently of 0.9% growth, had its figures confirmed.
Elsewhere, the Netherlands posted reasonable growth of 0.4%, while Austria grew by 0.1%.
Greek outlook riddled with uncertainty
Thanks to the self-induced political uncertainty about its future in the eurozone, Greece is back in recession, which of course is having a negative impact on its public finances.
Even if a bailout for Greece is agreed in the coming months, it will be some time before corporates and investors return to business as usual – suggesting growth will remain sluggish for some time.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.