Germany’s economy failed to grow in the first quarter, daunting expectations of modest expansion and making it harder for the region’s rate setters to decide how much to raise borrowing costs when they meet next week.
While Germany’s growth failure was an improvement from a 0.5 percent decline in the fourth quarter, it was weaker than the 0.2 percent growth forecast by economists in a Reuters poll.
However, the French, Italian and Spanish economies all saw output expand. Italy and Spain each recorded strong growth of 0.5 percent in the first three months of the year.
Italy’s figure beat economists’ expectations for growth of 0.2 percent, rebounding from a 0.1 percent decline in the previous quarter. Spain’s economy also grew faster than expected.
French growth accelerated to 0.2 percent in the first three months of this year, up from 0.1 percent in the fourth quarter of 2022, in line with expectations.
However, inflation in the euro zone’s second largest economy rose more than economists had forecast, rising to 6.9 percent in April from 6.7 percent in March.
Inflation in Spain also rose to 3.8 percent in April from 3.1 percent in March. However, core inflation, which excludes energy and unprocessed food prices to give a better indication of underlying price pressures, fell to 6.6 percent in Spain from 7.5 percent in the previous month.
The mixed signals in the data will complicate the ECB’s decision when it meets on May 4th to set borrowing costs.
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Economists are divided on whether the bank will slow the pace of rate hikes from half a percentage point to a quarter point next week. Politicians have said incoming data will be crucial.
The IMF has told central bankers in Europe not to pause or relax in their attempts to tame inflation, saying it is better to err on the side of overly tight policy than to be hasty in declaring victory over rising prices .
Alfred Kammer, the director of the IMF’s European division, said this week that core inflation will prove “much more persistent” than people are expecting and that rate-setters should not let up – even if headline inflation is now well below the peak of 10.6 per cent was recorded in October 2022.
The ECB has already hiked rates at an unprecedented pace to bring euro-zone inflation down to its 2 percent target. It raised its deposit rate from minus 0.5 percent last summer to 3 percent in March. The latest figures on inflation in the euro zone will be released on Tuesday.
Growth in several economies was fueled by strong export sales, which offset falling or stagnant household demand.
French exports rose 1.1 percent in the first quarter, helping offset weak consumer spending after months of labor disputes. Imports also fell 0.6 percent, meaning trade provided a significant boost to the economy.
Exports in Spain rose 5.8 percent qoq, partly due to a rebound in tourism, while domestic demand fell 0.8 percent.
The Federal Statistical Office announced on Friday that strong growth in exports and investments in the euro zone’s largest economy will be offset by weaker domestic demand.
Insee, the French statistics agency, said business investment was weaker in the first quarter while household spending was flat.
Domestic demand was negative for the second quarter in a row, even before inventory changes, which further weighed on growth. Goods consumption in France fell 0.2 percent in the first quarter, Insee said.
Gilles Moëc, chief economist at French insurer Axa, said previous strikes were estimated by Insee to cause no more than a temporary 0.2 percentage point contraction in gross domestic product, adding that previous disputes had been more disruptive.
French inflation topped the 6.6 percent rate forecast by economists polled by Reuters. However, Spanish inflation was below the forecast rate of 4.4 percent. Spanish manufacturing growth topped the 0.3 percent expected by economists and rose 0.2 percent from the previous three-month period.
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