Bert Colijn, Senior Economist at ING, explains that Eurozone GDP growth came in at 0.5% QoQ in 1Q as the economy is proving to be resilient to uncertainty both abroad and at home.
“Bar a surprise at the French elections on Sunday, Eurozone growth is set for a strong 2017.”
“Could the European economy become 2017’s Cinderella story? While investors were concerned about a breakup in the monetary union at the end of last year, it now looks like the Eurozone economy is more robust than many thought. The risk of a breakup has definitely not disappeared, in fact a Le Pen win on Sunday would revive that risk substantially, but growth has not been impacted by political uncertainty so far.”
“While consumers had plenty to worry about in the first quarter, confidence remained strong. The continued improvements in the labour market are an important factor here, as solid job growth boosts domestic demand. Still, inflation increased, making real income growth substantially lower in 1Q. With retail sales and new car registrations increasing, it seems likely that household consumption has contributed to growth in 1Q, although the contribution could have slowed.”
“Even though exchange rate developments remained favorable for the Eurozone in 1Q, the trade surplus narrowed, indicating that net exports were probably not a strong driver of growth either. This means that investment growth is likely to have improved significantly in 1Q. This would confirm the strength in new orders for manufacturing and business surveys that are hitting multiple year highs at the moment.”
“With pent up demand having surged in recent months and employment expectations at near decade-highs, it seems likely that domestic demand will continue to be strong in the months ahead. A strong 2Q seems to be in the making, which makes expectations for annual growth in the Eurozone ambiguous. Yes growth has upside potential, but still, downside risk from political uncertainty will continue to loom large and, if the polls do prove wrong on Sunday, could surge at the end of the week.”