Eurozone: Eurozone economy picks up notably in Q1 as recovery gathers momentum

Despite a tumultuous start to the year on the back of financial market turbulence and a slowdown in China, the Eurozone economy showed resilience in the first quarter of 2016 and picked up pace notably. A new, more-timely preliminary estimate showed that Eurozone GDP increased a seasonally-adjusted 0.6% in Q1 over the previous quarter, which was double Q4 2015’s 0.3% growth and surpassed market expectations. Compared with the same quarter of 2015, GDP expanded 1.6% in Q1, which mirrored Q4’s result. As a result of the positive reading, the economy is expected to have surpassed pre-financial crisis levels.

Although the preliminary GDP data did not include a breakdown by components, additional data continued to show that growth was supported by domestic demand, in particular by private consumption. The unemployment rate fell to the lowest level since August 2011 in March and household consumption continues to benefit from low inflation. In addition, an expansionary monetary policy continues to support economic activity in the bloc.

Meanwhile, additional data released by statistical offices across the continent showed that France’s economy gained steam and recorded the best result in one year. Spain continued to be one of the region’s best performers and grew a solid 0.8% quarter-on-quarter in Q4, whereas Austria and Belgium recorded mild expansions.

Overall, the Q1 figure is positive for the Eurozone economy and shows that the recovery has gained speed. However, some analysts are uncertain over the precision of the new, more-timely figure and it could be subject to substantial revision going forward. Commenting on this, Edoardo Campanella, Economist at UniCredit stated:

“Although revisions to today’s preliminary reading are possible in the coming weeks, our GDP tracker suggests that this figure is not too far-fetched when seen in light of the excessive and unjustified weakness observed at end-2015. Having said that, the most recent PMI surveys indicate that the underlying trend is somewhat softer, at around 0.4% qoq -- meaning that we should get ready for a moderation in the pace of growth in 2Q16.”

FocusEconomics Consensus Forecast panelists expect the Euro area economy to expand 1.4% in 2016, which is down 0.1 percentage points from last month’s forecast. For 2017, panelists expect the economy to expand 1.6%.