Eurozone | Growth gained momentum in 1Q19, but trending to moderate amid increasing risks

Summary

Hard data up to March point to domestic demand as the main driver of growth supported by the resilience of consumers and improving labour market. The better performance of exports to other EU countries offset the decline of those to Asia, raising doubts about foreign support and the sustainability of industrial growth.

Key points

• Key points:
• Soft data up to May show some stabilization but at lower levels than in 1Q19 and indicate that growth could lose some steam in 2Q19. Higher uncertainty is taking its toll also on services sentiment.
• Our MICA-BBVA model now projects Eurozone GDP to slow slightly to around 0.3% QoQ in 2Q19. This combined with positive surprise in 1Q19 could lead to a slight upward bias to our forecast of growth at 1% in 2019, but we remain cautious due to gloomier leading indicators and trade threats.
• Risks are tilted to the downside, mostly related to political events. The risk of a no-deal Brexit is increasing while US trade disputes are heightening, not only with China but also with the EU.

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