ICYMI – Euro area GDP weakest in 9 quarters, jobs slow, industry falls sharpest in 2 years
Euro area Q1 GDP confirmed at 0.1%Q/Q, the joint-weakest in nine quarters, as industrial output posted its steepest quarterly fall in two years and employment growth slowed sharply. A very bleak day for data from Europe on Wednesday ICYMI.
Summary:
- Q1 GDP was confirmed at 0.1%Q/Q, unchanged from the preliminary estimate, though the annual rate slipped to 0.8%Y/Y, the softest since Q2 2024, per the updated euro area release
- Germany contributed the most to the headline figure with 0.3%Q/Q growth, while Spain expanded 0.6%Q/Q and Italy grew for a third straight quarter at 0.2%Q/Q
- France failed to grow for the first time in five quarters, and Ireland contracted 2.0%Q/Q for a second consecutive quarter, shaving nearly 0.1ppt off the area-wide figure
- Industrial production fell 0.9%Q/Q in Q1, the steepest quarterly drop in two years, dragged down by weakness in energy output and a sharp fall in non-durable consumer goods including pharmaceuticals
- Employment rose just 0.1%Q/Q in Q1, with Germany recording a fourth successive quarterly fall in payrolls and France’s unemployment rate climbing to 8.1%, a five-year high
- Business surveys indicate firms intend to cut headcount at the fastest pace in five years this quarter, with weakening consumer confidence and eroding real incomes expected to weigh on household spending
The euro area’s first-quarter growth rate has been confirmed at 0.1%Q/Q, matching the preliminary estimate and marking one of the weakest quarterly expansions in more than two years. While the figure was nudged fractionally higher to 0.15%Q/Q when carried to two decimal places, it still represented the joint-softest pace in nine quarters and pushed the annual growth rate down to 0.8%Y/Y, the lowest since mid-2024 and meaningfully below the ECB’s own March forecast.
The headline figure was underpinned by a small number of outperformers. Germany, the bloc’s largest economy, expanded by 0.3%Q/Q, contributing around 0.09 percentage points to the aggregate. Spain continued to grow solidly at 0.6%Q/Q, and Italy extended its run of positive quarters to three with a 0.2%Q/Q gain. France, however, stalled entirely, failing to record any growth for the first time in five quarters. Ireland was the weakest performer, contracting by 2.0%Q/Q for a second straight quarter and subtracting almost 0.1 percentage points from the area-wide total.
Beneath the GDP headline, the picture in the industrial sector was notably worse. Aggregate industrial production fell 0.9%Q/Q in Q1, the sharpest quarterly contraction in two years. March alone saw a 1.5% monthly decline in energy output and a steep drop of 4.5% in non-durable consumer goods, driven largely by a double-digit fall in pharmaceutical production. Capital goods and intermediate goods offered some partial offset, with the latter posting its strongest monthly gain in a year, partly on the back of strength in chemicals and non-metallic minerals.
Labour market conditions also softened visibly. Employment rose just 0.1%Q/Q in Q1, half the pace of the prior two quarters, with net job creation of only 148,000 across the bloc. Germany shed workers for a fourth consecutive quarter, and France saw its unemployment rate climb 0.2 percentage points to 8.1%, the highest level in five years. Business surveys now suggest firms plan to reduce headcount at the fastest rate in five years in the current quarter, adding to the headwinds facing household spending. With consumers already favouring saving over spending amid job insecurity and squeezed real incomes, household consumption is expected to weaken further in Q2 and may subtract from GDP growth for the first time since late 2023.
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The confirmation of near-stagnant euro area growth, combined with sharply falling industrial output and softening labour markets, reinforces expectations that the ECB will need to maintain an accommodative stance. Weakening consumer confidence and rising precautionary saving point to further demand-side pressure in Q2, which could weigh on energy consumption and dampen near-term oil import appetite from the bloc. France’s deteriorating labour market and Germany’s fourth consecutive quarter of falling employment are particularly notable given their combined weight in euro area demand.
This article was written by Eamonn Sheridan at investinglive.com.