Eurozone: Rebound on the way – RBS

Analysts at RBS point out that Eurozone GDP growth was confirmed as 0.4%q/q in Q1, which was a blockbuster figure compared to the UK’s 0.1%, but it was soft after three 0.7% figures on the spin.

Key Quotes

“Like the UK, one-off factors are getting the blame, including the weather, strikes in France and even a bout of flu in Germany! An improved performance in Q2 is expected – a similar hope for the UK. Italy and Spain showed less obvious signs of a slowdown, also lending support to the forecast of a better Q2.”

“Goods exports from the Eurozone were a whisker away from the €200bn mark in March (€199.9bn), exceeded only twice before. It’s not a weak Euro that’s behind this. One Euro gets you about 1.18 US dollars, bang in the middle of the 1.12-1.24 range it has traded in over the last 12 months. Instead its simply solid growth from the EZ’s customer nations. The biggest market, the US, saw imports of EZ products rise 2.2%. Smaller markets like Turkey, Japan and South Korea managed double digit growth. Slightly more concerning, China’s appetite for goods from the Eurozone grew by a sluggish 0.6%. Here’s hoping the bloc’s 2nd biggest market livens up.”

“The European Central Bank would like to slow its asset purchase scheme (QE) and gradually reduce member states’ reliance on what was once considered extraordinary monetary policy. A little inflation would help. So rate setters won’t welcome news that annual inflation slowed in April, to 1.2% (it was 1.9% a year ago). Despite a roaring economy, Ireland’s inflation fell to -0.1%y/y in April, a drop of 0.2% on the month. Service inflation, a good indicator of underlying inflation within the region, was 1%. While that might please inflation hawks (i.e., creditors), central banks and debtors may disagree.”

 


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