Economic growth in the eurozone accelerated in Q1 2015 by 0.4% qoq and 1.0% yoy compared to 0.3% qoq and 0.9% qoq in Q4 2014. Momentum was carried by France for a change where GDP rose by a faster-than-expected 0.6% qoq (0.7% yoy). Growth in Italy too surprised to the upside where the 0.3% qoq gain in real GDP was the first positive number since Q3 2013. German GDP growth disappointed by slowing to 0.3% in Q1 from 0.7% in Q4 14 (1.0% yoy vs 1.4% previously). Spain is still top of the EU class, but Greece fell back into recession after registering a second successive quarterly contraction in GDP.
The return to stronger growth across the euro area marks a significant improvement from a year ago and will help to buttress optimism that deflationary forces are ebbing away. Though the euro area outperformed the UK and the US in Q1, there is no reason to get carried away that this will be repeated in Q2.
Though details on growth components are still sketchy and will not be available until the second release, French growth was underpinned by the rebuild of inventories and private consumption, but investments slumped for a sixth successive quarter. Italy may finally have exited recession but the fact that exports were a net drag on growth despite an 8.5% decline of the trade weighted euro in Q1 shows that a weaker currency alone will not lift exports to a higher level. It is a similar story for Germany where net trade did not boost growth at all, observes Societe Generale.
For the other countries, the data for Spain were released a few weeks ago and confirm that the economy is on a solid cyclical upswing with growth strengthening for a second successive quarter. The four-quarter average accelerated in Q1 to 0.65% qoq. However that beyond the cyclical rebound, growth will fall back to longer-term potential of around 1.0%.
