Eurozone: Strong domestic demand and an improving external sector drive Eurozone economy in Q1
June 7, 2016
Economic activity in the Eurozone hit a one-year high in the first quarter of 2016, according to more complete data. GDP increased a seasonally-adjusted 0.6% in Q1 over the previous quarter, which was an upward revision from the 0.5% increase reported on 13 May and above the 0.4% expansion tallied in Q4. On an annual basis, GDP growth maintained Q4’s pace at 1.7%.
Robust domestic demand continues to fuel the Eurozone’s economic recovery. Private consumption picked up steam, expanding at 0.6% over the previous quarter, which marked an over one-year high (Q4: +0.3% quarter-on-quarter). An improving labor market and rising real incomes are providing a boost to households. Government consumption inched down from a 0.5% increase in Q4 to a slightly milder 0.4% rise in Q1. Meanwhile, gross fixed investment decelerated from Q4’s 1.4% rise to a 0.8% increase. Although the low interest rate environment and easier access to credit is supporting investment growth, uncertainty surrounding global growth prospects is likely impacting investment.
On the external front, exports of goods and services rose 0.4% in the first quarter, which followed Q4’s 0.7% rise. Imports also decelerated and grew 0.7% (Q4: +1.4% qoq). Consequently, the external sector’s drag on the economy lessened in the first quarter. Net exports subtracted 0.1 percentage points from overall economic growth in Q1, after the 0.3 percentage-point drag registered in Q4.