Most commentators were predicting a swift growth recovery for Germany and the wider euro area in 2019H2.
Are you an optimist or a realist? Data are always open to interpretation and the same set of numbers can lead to different forecasts. The preliminary Q1 GDP figures for the euro area (EA) published yesterday are no exception. Optimists are reading the modest QoQ acceleration – both at EA aggregate level and in Italy – as a sign that the EA is out of the woods earlier than expected (see left-hand chart below). In contrast, we stick to our view that, although the worst of the slowdown might now be behind us, many indicators suggest that the current soft patch will last until the end of Q2.
First, exports are still struggling significantly. Second, the inventory build-up in Q1 implies lower production later this year. Third, consumption is the strongest driver of EA growth. Fourth, Spain confirms once more that it is an important EA growth engine. Finally, Italy requires extra care.
With ECB President Mario Draghi trying every rhetorical trick in the book to kindle inflation, real M1 starting to expand again and Chinese fiscal stimulus in the pipeline, we think EA growth is now testing a floor. However, no quick rebound seems in sight yet.
Euro area GDP continued to slow with Germany posting growth of -0.1% for Q2.