Eurozone Economic Recovery Remains Anaemic Amid Global Growth Worries

Strategic Insights -

The Eurozone's first-quarter economic activity came in better than expected, but the recovery is far from robust. The Group of Eight leading economies warned last weekend of the threat to growth from high oil prices, a concern amplified in Europe where growth is likely to barely exceed 2 per cent this year. French domestic consumption showed signs of recovery, but German activity remains heavily dependent on net exports. With monetary policy tightening in the US and China slowing its economy, the peak of overseas growth momentum may have already been seen.

Key Takeaways:

  • Eurozone economic growth is expected to barely exceed 2 per cent this year, despite a better-than-expected first quarter.
  • French domestic consumption showed signs of recovery in the first quarter, but German activity remains heavily dependent on net exports.
  • Rising oil prices are a dual-edged sword, with Eurozone headline inflation expected to exceed 2 per cent and potentially reach 2.5 per cent by June.
  • The European Central Bank (ECB) flagged concerns about the pass-through of rising commodity prices into core inflation.
  • Wage inflation is moderating, with unit labour cost growth falling below 2 per cent in the fourth quarter of last year.
  • Economic risks, including high oil prices and a slowdown in global growth, suggest that the Eurozone economy is more vulnerable to shocks than previously thought.
  • The ECB is expected to increase its benchmark refinancing rate by between 25 and 50 basis points by the end of the year, but the timing of a rate hike remains uncertain.

Statistics:

  • Eurozone economic growth is expected to exceed 2 per cent for the year.
  • French domestic consumption showed a 0.5 per cent increase in the first quarter.
  • German activity remains 70 per cent dependent on net exports.
  • Eurozone headline inflation is expected to reach 2.5 per cent by June.
  • Unit labour cost growth fell below 2 per cent in the fourth quarter of last year.
  • The ECB is expected to increase its benchmark refinancing rate by between 25 and 50 basis points by the end of the year.

Sources:

  • Group of Eight leading economies (no publication date)
  • European Central Bank, "Monthly Bulletin" (May)
  • Citigroup, no publication date (referenced in the article)