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The latest official estimates of economic growth in the eurozone were released this morning, providing further evidence of the currency area’s “increasingly solid” economic recovery.
Quarterly growth of 0.5 per cent in the first three months of the year – overtaking the UK for only the third quarter since the eurozone crisis – was in line with economist forecasts, but Eurostat also said growth was stronger than previously thought at the end of last year.
Experts are less certain, however, about whether the strong start will last for the rest of the year. Here’s a roundup of what some economists are saying:
Bert Colijn, senior eurozone economist at ING, said the bloc is on track for a good year – barring an upset in the second round of the French election this weekend:
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.
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.
Dominic Bryant at BNP Paribas said the strong growth should provide further support for the ECB to begin ending its monetary stimulus later this year:
The key point is that the eurozone economy has now grown at a two per cent annualised pace during the past two quarters. This is about double its trend pace, in our view. Surveys also started Q2 on a firm footing, suggesting that there are upside risks to our 0.4 per cent q/q forecast.
The brisk erosion of spare capacity is one factor behind our forecast that core inflation trends higher during H2 2017 which, when combined with positive growth developments, should prompt the ECB to reduce the degree of policy accommodation in September.
However, Pantheon Macroeconomics’ Claus Vistesen warned that the flash estimates are liable to revision, and predicted a pullback later in the year:
A solid headline, and slightly better than we expected. We caution, though, that this early estimate is subject to revisions. Eurostat has used confidential, and uncertain, advance estimates in Germany and Italy, and also has had to ‘guess’ what happened to EZ industrial production in March.
Eurozone GDP growth increased to two per cent annualised in Q4 16 and Q1 17, but we doubt this pace will be sustained. The strong performance at the end of 2016 and into 2017 mirrors the story in the two previous years, but on these occasions GDP growth eased in the middle of the year, and we think the same will be the case in 2017.
Simon Wells, chief European economist at HSBC, was also sceptical about whether the current strength can be sustained:
The number was broadly consistent with the Q1 PMIs, but the rise in the April PMI points to growth accelerating in Q1. While this is an upside risk, our view is that consumer spending growth slows slightly from here, weighing on overall growth. Assuming also that the recent rise in core inflation is not sustained, we therefore think the ECB will remain on its current course with a gradual tapering of QE and no rises in key policy rates until QE ends.
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