Eurozone: GDP decelerates slightly - Wells Fargo

Data released today showed that real GDP in the Eurozone grew 0.4% during the first quarter. Analysts at Wells Fargo, point out the economic expansion is set to continue but they see that persistently low inflation remains a roadblock for the European Central Bank. 

Key Quotes: 

“Data released today showed that real GDP in the Eurozone grew 0.4 percent in Q1 (1.7 percent annualized), largely in line with consensus expectations. While data on underlying demand components is not available at this time, today’s print shows that growth in the Eurozone likely peaked toward the end of 2017. We look for GDP growth to slow modestly this year to roughly 2 percent from 2.5 percent in 2017, especially as we also look for global growth to converge toward its long-run trend after surprising to the upside last year. But we forecast the Eurozone’s expansion to remain intact.”

“Monthly data largely support the modest deceleration in Q1. Growth in industrial production has been negative through the first two months of the year, and the manufacturing PMI has also moderated slightly following record highs above 60 seen at the end of 2017. Growth in real retail sales has also been lackluster so far this year, and will likely be reflected in slower personal consumption growth for Q1. However, the unemployment rate continues to decline, and the overall growth rate registered in Q1 is still above the Eurozone economy’s potential growth rate, meaning the output gap should gradually continue to narrow.”

“We look for the ECB to continue its €30 billion per month pace of asset purchases through September, before tapering further to €10-€15 billion per month through the end of the year. The ECB has also signaled that it is in no hurry to tighten policy even after it ends its bond-buying program. We look for it to raise the deposit rate from -0.40 percent to -0.20 percent sometime next spring, then hike its main refinancing rate next summer.”