Eurozone Q1 GDP beats forecasts but CPI inflation back in the red

Flash eurozone Q1 GDP estimates published by Eurostat showed that Q1 GDP growth came in at 0.6%q/q, beating consensus forecasts for a rise of 0.4%. On an annualized basis, euro area GDP was at +1.6% compared with Q1 2015.

Breakdown by country shows French growth at a stronger-than-expected 0.5%q/q, boosted by household spending, and Spanish growth continuing to outperform at 0.8%q/q, also above expectations for 0.7%q/q despite the political impasse and prospects for new elections.

"The relatively strong growth figures for Q1 are not expected to last and we should expect a return to softer growth in Q2." said Lloyds bank in a report.

Eurostat also released its flash estimate for eurozone CPI inflation in April which showed inflation back in the negative territory. April headline inflation dipped to ‑0.2%y/y from 0.0%y/y in March. Core CPI, which excludes food, energy, alcohol, and tobacco costs increased by a seasonally adjusted 0.8% in April, below forecasts for 0.9% and down from 1.0% a month earlier.

CPI fell more than expected underlining concerns over the threat of deflation in the region. Data brings into question the effectiveness of the enormous stimulus program the European Central Bank is currently implementing.

The Euro saw limited impact following the release. It is currently trading 0.32 higher today versus the US dollar at a rate of $1.1383. European stock markets were broadly lower.