Euro-area growth revised down slightly despite Germany

[MADRID] The euro-area economy grew slightly less than initially estimated in the first quarter, though momentum was still the fastest in a year.

Led by a better-than-forecast performance by Germany, its largest economy, the euro region expanded 0.5 per cent in the three months through March. That compares with an initial estimate of 0.6 per cent. From a year ago, it grew 1.5 per cent.

"The headline number was slightly weaker than the estimate, but it's a good number nonetheless," said Marco Valli, chief euro-area economist at UniCredit Bank in Milan.

"My feeling is there were some temporary factors that supported growth in the quarter, but the underlying trend is slightly softer."

Expansion in Germany accelerated to 0.7 per cent, the fastest pace in two years, beating the 0.6 per cent estimate in a Bloomberg survey of economists. Italy grew 0.3 per cent and the Dutch economy 0.5 per cent. The Greek economy contracted 0.4 per cent for the same period.

Germany has benefited from record-low unemployment that has supported consumer demand, while European Central Bank stimulus is helping to drive a cyclical recovery in the euro area as a whole.

But the divergence across the bloc highlights the challenge for the policy makers to boost uneven growth and revive an inflation rate that's fallen below zero again. ECB President Mario Draghi has said the outlook for growth remains "tilted to the downside."

Among the euro-area data available so far, Greece's performance puts it as the worst performer in the first quarter. Prime Minister Alexis Tsipras said the expected conclusion of the latest bailout review will reduce uncertainty and help the country's economy to start rebounding this year.

The government expects more than 10 billion euros (S$15.6 billion) from bailout program tranches and European Union structural funds to be injected this year.

On the outlook for Germany, Joerg Kraemer, an economist at Commerzbank in Frankfurt, said growth may ease this quarter, though he still raised his forecast for 2016 to 1.5 per cent from 1.3 per cent.

"Factors arguing against a significant rise in the underlying growth trend are weak demand from the emerging countries and decreasing tailwind from euro depreciation in 2014," he said in a note.

Incoming data backs the view that the pace of growth may be slackening. Industrial production slumped in both Germany and the euro zone in March, and business confidence in the country deteriorated last month.

BLOOMBERG