Eurozone growth rebounds as temporary headwinds fade
- Eurozone GDP growth accelerated to 0.4% in the first quarter of 2019, relieving fears of recession
- External demand and political uncertainty remain possible headwinds but domestic demand has held up well.
The early estimate for first quarter eurozone GDP growth showed a pick-up to 0.4% quarter-on-quarter (q/q) from 0.1% in the previous quarter – beating consensus expectations of 0.3% growth.
The latest data release suggests that the monetary union has largely sailed through most of the temporary headwinds that it faced in the second half of 2018. Gilets jaunes protests, new car emissions tests, and low water levels of the river Rhine all disrupted activity last year and caused growth to slow sharply.
While there are some residual effects remaining, the latest figures should also put to bed speculation that the eurozone was in recession, and supports the strong performance of European equities so far this year.
Within the member states that have reported so far, France saw activity remaining steady at 0.3% q/q, although it reported better domestic demand growth thanks to a pick-up in household spending. Spain recorded another impressive quarter, as GDP growth picked up from 0.6% to 0.7%, also marginally better than consensus expectations. Finally, Italy saw a moderate rebound, as growth picked up from -0.1% at the end of last year to 0.2% in the first quarter, also beating consensus expectations.
Overall, we believe these are a good set of growth figures given recent events. External demand is likely to have remained weak as the fallout from the US-China trade war continues. European political uncertainty in the form of the Spanish elections, Brexit and European parliamentary elections probably had a small negative impact, but domestic demand has remained resilient throughout this period.