Conflicting economic data muddies picture for ECB

Economic data from across the eurozone on Friday (Apr 28) painted a mixed picture for growth and inflation, potentially making the European Central Bank’s (ECB) interest rates decision next week even more difficult.

The eurozone’s two largest economies, Germany and France, stagnated or barely grew in the first three months of the year as a surge in exports was offset by a decline in domestic consumption by households and the government.

But the Spanish and Italian economies expanded more than expected, partly thanks to that same rebound in trade.

Inflation data was also unusually hard to interpret, with increases in the headline rates in France and Spain while most German states saw the pace of price growth slow or stabilise.

The ECB is due to raise rates on May 4, with policymakers weighing another 50 basis point hike against the merits of slowing rises down to 25 basis points

“It’s a mixed bag of data, with something in it for everyone,” ING’s chief economist Carsten Brzeski said.

“The ECB shouldn’t base its next policy decision on this batch of data,” he added, saying next Tuesday’s eurozone inflation reading and Bank Lending Survey would be more important.

In a potential shot in the arm for the ECB, a surge in food prices showed some signs of easing in France and Spain.

The prices of groceries have been a key driver of overall inflation across the 20 countries that use the euro in recent months, driven by higher fuel costs, unfavorable weather and some margin expansion by retailers.

SEE ALSO

Germany expected to dodge recession with weak Q1 growth

French GDP edges up in Q1 despite strikes and high inflation

Italy and especially Spain were the stand out performers in terms of economic growth.

Spain’s first-quarter economic output expanded by 3.8 per cent year over year.

“All the growth comes from the foreign sector given a huge rebound in exports,” Angel Talavera, an economist at Oxford Economics, said.

“The data puts us within reach of 2 per cent growth this year if we manage to maintain this growth momentum and it is almost certain that we will see upward revisions to the growth outlook.” REUTERS