Euro area economic growth meets expectations in Q1 2017

Data released earlier this day showed that the euro area economic growth expanded 0.5 percent in the first quarter of 2017 on a sequential basis and was up 1.7 percent year-on-year. This is in line with the consensus expectations. This is the ninth straight quarter where the year-on-year growth rate has dropped in the range of 1.5 percent to 2 percent.

Taking a look at the spending patterns, it is possible that personal consumption growth added to the GDP growth. In the initial two months of this year, retail sales had grown 0.2 percent by volume as compared with the average of the fourth quarter. Volumes of export are also beginning to trend higher, reaching 3 percent growth in January on a year-on-year basis for the first time since May 2015.

The biggest risk to the continued economic improvement in the currency bloc is the French Presidential election on 7 May. But if Emmanuel Macron is victorious as president, which is widely expected, then a downside risk to the French economy and the euro area will have faded, stated Wells Fargo in a research report.

With the economic growth in euro area comparatively tame, it is not surprising that the consumer price inflation has been slightly subdued. At present, the overall pace of inflation stands just below 2 percent. Although the core rate of inflation is lower, it did accelerate to 1.2 percent in April from 0.7 percent in March.