Eurozone Q1 GDP rises slower than expected

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The Eurozone Q1 GDP rises slower than expected during the first three months of the year, as widely expected. Official data released last week by the European statistics agency, Eurostat showed that the Eurozone economy advanced 0.4% in the first quarter.

This was widely in line with expectations, but the data showed a slower pace of growth compared to the 0.7% increase seen in the final three months of 2017. The first quarter GDP data was one of the weakest pace of expansions seen since the middle of 2016.

Eurozone Q1 GDP rises slower than expected 1
Eurozone Q1 2018 GDP: 0.4% (Source: tradingeconomics.com)

On an annualized basis, the eurozone GDP growth was seen slowing from 2.8% to 2.5% for the quarter ending March 2017. Economists said that the slowdown was due to temporary factors and that the economy should start to gain momentum in the months ahead. This was the preliminary GDP release and further revisions are expected in the coming months.

The pace of GDP expansion pushed the Eurozone GDP rate behind the United States but was still ahead of the UK’s GDP growth. The UK’s first quarter GDP, according to preliminary release by the UK’s Office for National Statistics showed that the economy expanded at a pace of 0.1%. This was the weakest pace of growth since 2012. On an annualized basis, the UK’s GDP expanded at a pace of 1.2%.

The Eurozone Q1 GDP rises slower than expected announcement came amid broad weakness as signaled by leading indicators. Economic sentiment was also hit as the index slipped in March but remained unchanged in April. This suggests that the Eurozone economy is likely to bounce back and average around 2% annualized GDP growth rate in the coming quarters.

Among the temporary factors attributed to the weaker pace of GDP was the cold weather and striking workers and an outbreak of flu which seemed to have affected worker’s productivity.

Despite the economic sentiment slipping, most other indicators showed some form of stabilization after falling in the first three months of the year.

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Earlier, business confidence took a sharp hit following Trump’s announcement of imposing trade tariffs. European businesses were seen to be cautious following the uncertainty surrounding global trade. At one point, businesses were concerned about a full blown trade war emerging between the United States and China.

Since the first rhetoric from the Trump administration, the U.S. and China were engaged in imposing tit for tat trade tariffs. However, the issue subsided as the Chinese administration was seen making promises of opening up its economy including allowing foreign investors to gain controlling share in certain restricted sectors such as automobiles and insurance.

The EU leaders are also in talks with President Trump whose steel and aluminum tariffs go into effect from May. For the moment, the EU, Mexico among other countries were exempted from the deal for 20 days allowing for further negotiations to progress.

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Given the smaller than increase in the GDP data, the ECB is unlikely to announce any major changes at the upcoming monetary policy meeting. The central bank maintained all the key interest rates and the QE purchases unchanged at its previous monetary policy meeting.

The central bank, which was once seen to be hawkish, was seen taking a more cautious approach. The euro currency, which has appreciated in value against the U.S. dollar, was seen falling sharply after the ECB meeting held a few weeks ago.

The ECB is currently maintaining its QE purchases at 30 billion euro per month and this is expected to continue until the end of 2018. Although the central bank removed references to continuing with QE, the ECB President Mario Draghi had signaled that the central bank was still committed to expanding QE if the economy deteriorated.

The next GDP revision for the Eurozone is expected to come in a few weeks time.

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