Euro Macro: Q1 GDP preview: slowdown on the cards – Eurozone GDP growth probably slowed in the first quarter of this year after it expanded by 0.7% qoq for three consecutive quarters previously. No major economic activity reports have been published for March yet, but the data for January-February clearly signal weaker growth in Q1. Importantly, data for retail sales and new passenger car registrations indicate that private consumption stabilised or even contracted modestly in Q1, after it expanded by 0.2% qoq in 2017Q4. The rise in oil prices during the first three months of the year (by more than 9%) seems to have played a role here, as other factors such as strong labour and housing markets continued to support consumption in Q1. Also, consumer sentiment, on balance, has remained almost unchanged at historically high levels since the end of 2017, while growth in consumer credit strengthened in Q1. Since we expect oil prices to remain close to their current level during the rest of the year, we expect the slowdown in consumption in Q1 to be temporary and we expect a rebound in Q2.
Besides consumption growth, export growth also seems to have lost momentum in Q1, particularly exports to China and emerging Asia, although part of that was compensated by strengthening exports to the US. We expect the contribution of net exports to GDP growth to have diminished in Q1, following a positive contribution of 0.4 pps in Q4. It should remain close to zero during the rest of the year. Finally, indicators for fixed investment growth have remained strong, for instance, orders for German capital goods by other eurozone countries increased by 8% in the three months up to February (3M-o-3M) and loan growth to non-financial companies is growing strongly. Therefore, we expect fixed investment to have remained an important driver of GDP growth in Q1. All in all, we have pencilled in 0.5% growth for Q1. Considering that we expect a benign outcome of the global trade conflict between China and the US without any serious consequences for the eurozone economy, we expect GDP growth to strengthen slightly after Q1 and to remain well above the trend rate throughout this year. (Aline Schuiling)