The euro area economic growth slowed in the first quarter, while inflation picked up pace in April, Eurostat reported on Thursday. The data released just ahead of the European Central Bank’s (ECB) rate decision confirmed that the U.S.-Iran conflict was beginning to have an impact on the 21-nation regional economy.
The preliminary first-quarter GDP grew by 0.1% quarter over quarter (QoQ), slower than the 0.2% rate for the previous quarter. The consensus had modeled the pace of expansion to be unchanged. The European Union (EU) also reported 0.2% growth for the three-month period.
Q-o-Q GDP Growth for Euro the area and EU
Source: Eurostat
Among the member states, Finland (+0.9%), Hungary (+0.8%), Estonia (+0.6%) and Spain (+0.6%) recorded the fastest growth. Countries that recorded negative growth included Ireland (-2.0%), Lithuania (-0.4%) and Sweden (-0.2%). Germany, the biggest regional economy, expanded by 0.3%, faster than the 0.2% rate in Q4, while the French economy stagnated and Italian GDP growth decelerated to 0.2% from 0.3%.
On a year-over-year (YoY) basis, the euro area expanded at a seasonally adjusted rate of 0.8% compared to 1% for the EU. The Q1 growth marked a deceleration from the previous quarter’s 1.3% and 1.4%, respectively.
Inflation Accelerates Further: The annual consumer price inflation (CPI) rate for the euro area quickened to 3% in April from 2.6% in March, as energy prices climbed 10.9% following a 4.7% rise in March.
The CPI inflation, excluding energy, grew at a slower pace of 2.2% (down from +2.3%), and the index, excluding energy, and unprocessed food, rose 2.1% (down from +2.2%). Food, alcohol and tobacco prices climbed 2.5% (+2.4%). Non-energy industrial goods prices also rose 0.8% versus 0.5% in March, while services price growth slowed to 3% from 3.2%. The monthly pace, however, slowed to 1% from 1.3%.
Jobless Rate Tick Down: The euro area’s jobless rate eased to 6.2% in March from 6.3% in February, aligning with expectations. The EU unemployment rate was a more modest 6%. The youth unemployment rate (for those under 25) was at 14.9% in the euro area and 15.4% in the EU.
ECB Rate Decision In Spotlight: With the ECB set to announce its interest rate decision Thursday morning, ING Chief Economist for Belgium, Luxembourg and Eurozone Peter Vanden Houte said the central bank may be forced to announce an “insurance” rate hike to prevent a deterioration in inflation expectations. “The stagflationary shock induced by the war in the Middle East will slow eurozone growth in the coming months, while inflation will climb towards 4%,” the strategist said.
That said, consensus expectations call for the ECB to hold its key rates unchanged, with the main refinancing rate expected to remain at 2.15%, the deposit facility rate at 2% and the marginal lending facility at 2.40%.
