GDP records best reading since Q3 2022 in Q1 2024

Economic activity rebounded in the first quarter, growing 0.3% on a seasonally adjusted quarter-on-quarter basis, matching preliminary estimates and rising above the 0.1% contraction logged in the fourth quarter of last year. Q1's reading marked the best result since Q3 2022. On an annual basis, economic growth ticked up to 0.4% in Q1, from the previous quarter's 0.2% expansion. Q1's reading marked the best result since Q2 2023.

The improvement was chiefly driven by external demand: Exports of goods and services increased 1.4% on a seasonally adjusted quarterly basis in the first quarter, which was above the fourth quarter's 0.2% expansion. Conversely, imports of goods and services deteriorated, contracting 0.3% in Q1 (Q4 2023: +0.6% s.a. qoq). Looking at domestic demand, private consumption growth was unchanged at 0.2% seasonally adjusted quarter on quarter in Q1 from Q4. Less positively, public consumption flatlined in Q1 (Q4 2023: +0.6% s.a. qoq). Moreover, fixed investment was down 1.5% in Q1, contrasting the 0.8% increase in the prior quarter, hampered by still-tight financing conditions. Looking at specific countries, growth picked up in Italy and rebounded in Germany. Meanwhile, the Spanish economy grew at the same pace as in Q4, while the Netherlands swung into contraction. Finally, France’s economy expanded at a slightly weaker speed.

Our panelists see the Euro Area growing largely at Q1’s pace in Q2 and expect domestic demand to gather some steam; higher PMI readings in April–May relative to Q1 back this projection. On the flip side, our panelists project exports to decelerate.

Carsten Brzeski, global head of macro at ING, commented on the outlook: “The economy continues to recover, but there are no reasons to expect a significant acceleration in growth. With some pockets of inflationary pressures still hanging around, the ECB’s rate cutting cycle will unfold very slowly. We expect at most two further cuts this year.”

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