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EMU CommentGDP growth has likely peaked

  1. Slowdown partly temporary
  2. Domestic demand likely weakened
  3. Unemployment stable - but trend is still down
Slowdown partly temporary
As expected, real GDP growth decreased in the first quarter of 2018 to 0.4 percent q-o-q, from previously 0.7 percent q-o-q. This is the slowest growth in one and a half years. We had already been warned about a slowdown in the weak hard data on retail sales and industrial production in the first two months of the year. Meanwhile, sentiment data has declined sharply, but stabilised at a still robust level in March after flying unsustainably high over the turn of the year (see graph). Hence the first quarter growth should likely be seen as a pull-back from a strong finish to 2017, but temporary factors such as poor weather and financial market jitters combined with protectionist worries likely also explained some of the slowdown. Looking ahead, we expect growth to improve in the second quarter, but the slowdown probably underscores the fact that growth has peaked and will likely moderate over the next three years (as described in our recent Global Macro Forecast: “Global boom starting to cool”). In our view, the slowdown merely confirms the ECB’s already expressed acknowledgement of a growth moderation in the beginning of the year, likely influenced by temporary factors.
Domestic demand likely weakened
Today’s preliminary release of first quarter GDP came without details on the subcomponents. We expect a decrease in private consumption growth to be a main driver behind the slowdown, as suggested by retail data, while fixed investments probably are more or less unchanged. On the one hand, weak industrial production does not bode well for investments, where cold weather could depress residential investments. On the other hand, order books levels are elevated and capacity utilisation is high. This is a further reason to expect second quarter GDP to improve. Net trade figures have been fairly unchanged positive, while we expect inventories to have risen, partly due to the weaker domestic demand.
Unemployment stable - but trend is still down
Elsewhere we got unemployment numbers for March that showed a stable unemployment rate at 8.5 percent as expected. This was suggested by weaker employment sentiment figures, but these continue to suggest that the downward trend is intact. This is in line with our view of growth staying above potential, but the pace of declines might well subside as growth moderates over the next couple of years.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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