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EMU CommentBetter growth and unemployment numbers than expected

  1. GDP growth has stabilised
  2. Unemployment rate declined another notch
  3. The ECB might find some comfort in the numbers
GDP growth has stabilised
Today’s preliminary GDP growth for the eurozone in the first quarter showed an improvement to 0.4 percent from previously 0.2 percent, a notch higher than we and consensus had expected. Hence, the stabilisation in the PMI barometers in the past months seems to have lagged the actual outcome of GDP growth over the past couple of quarters (first graph), possibly influenced by the general increased global uncertainty over the turn of the year. Our view is that the stabilisation in growth will last a couple of quarters more, before the fundamentally-driven slowdown gains traction toward the end of the year (as outlined in our recently released April Global Macro Forecast). As usual, the GDP release did not provide details on the expenditure components, but the French numbers suggested that the growth increase was supported by robust private consumption and to some extent investments while exports were a drag. Additionally, the eurozone industrial production on a quarterly basis so far (January and February) has picked up solidly in the first quarter, while retail sales maintained the positive growth pace of the fourth quarter. Contrary to the French numbers, the eurozone trade balance has suggested a slight improvement in the net export picture in the first quarter. Furthermore, inventory indicators have suggested that inventories contributed less negatively in the first quarter compared to the very negative fourth quarter of 2018. This is of course not a cause of optimism per se.
Unemployment rate declined another notch
Elsewhere, the unemployment rate dipped in March to 7.7 percent from previously 7.8 percent, as we expected (consensus expected an unchanged rate). Even though labour market indicators have worsened the past months, they remain in positive territory (second graph) but point to a less favourable improvement in the coming months. With annual GDP growth (at 1.2 percent in the first quarter) staying close to the likely potential growth rate, we expect employment growth to wane gradually during the year and unemployment to bottom out some time close to the end of this year. Furthermore, the decline in German unemployment continued in April at a higher pace than in March, but generally in line with the trend of the past year.
The ECB might find some comfort in the numbers
As goes for the ECB, today’s data did provide more evidence of a stabilisation in the economy. Although the growth numbers can barely be characterised as strong, they hardly confirmed the worries expressed by ECB president Draghi at the recent policy meeting about ‘the slower growth momentum extending into the current year’. However, admittedly, uncertainty is still pronounced, and the growth impetus still seems highly dependent on general sentiment. Especially the woes within the manufacturing sector seem to stay with us for some time yet.

Source: Macrobond


Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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