Is this the end of the eurozone recovery?
Eurozone GDP growth slows, but adverse weather is probably to blame. Azad Zangana, Schroders', Senior European Economist comments on the latest figures announced today.
"The early estimate of real GDP growth for the European Monetary Union showed a significant slowdown for the first quarter of the year. Quarterly GDP growth fell from 0.7% to 0.4% - the slowest pace of quarterly growth for six quarters. The year-on-year measure fell to 2.5%, which by historical comparisons remains very strong. It appears that adverse weather, dubbed the “Beast from the East”, probably caused output growth to slip as heavy snow disrupted travel, construction and some production.
It is worth mentioning that the latest figures matched consensus expectations, as the majority of economists correctly predicted the slowdown. The big question now is whether the weather was the only cause of the slowdown, and therefore implying that the economy should rebound in the second quarter, or whether there is something more serious causing the slowdown. The rise in energy prices in recent months coupled with the stronger euro would have squeezed exporters.
Evidence so far has been inconclusive. For example, leading indicators such as the Markit purchasing managers’ surveys did not pick up in April after the slowdown in March. However, the Belgian National Bank survey did rebound strongly in April. Moreover, early GDP releases from France, Spain and Italy showed that the Southern member states, which were not significantly impacted by the weather, did not experience a slowdown in GDP (0.7% and 0.3% respectively for Spain and Italy). France on the other hand saw growth slip from 0.7% to 0.3%.
Investors will probably remain nervous until there is a clearer signal of a pick-up in growth; however, we are confident that the economic slowdown recorded in the first quarter in the eurozone was largely a result of the adverse weather experienced in February and March. Economic growth should rebound significantly in the second quarter, making up for some, if not all of the lost momentum seen recently. We therefore continue to expect the European Central Bank to tread the path towards ending quantitative easing in September, and raising interest rates in early 2019."
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Notes to Editors
Important Information: The views and opinions contained herein are those of Azad Zangana, Senior European Economist, Schroders, 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. The material 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 guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. 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. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document 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.