The estimated drop in GDP growth for Q1 in the European Monetary Union is probably due to the adverse weather that affected Europe in February and March.
Schroders’ senior European economist, Azad Zangana, says that the “Beast from the East” — a cold wave that arrived from Siberia and affected major parts of Europe — is likely to have caused output growth to slip as heavy snow disrupted travel, construction and production.
Official figures have shown that quarterly GDP growth fell from 0.7 percent to 0.4 percent, the slowest pace of quarterly growth for six quarters.
In a note on the Q1 figures, Zangana says that the latest figures match consensus expectations, as the majority of economists predicted a slowdown. “The big question now is whether the weather was the only cause of the slowdown, and therefore implying that the economy should rebound in the second quarter, or whether there is something more serious causing the slowdown,” she writes.
She adds that the rise in energy prices in recent months, coupled with the stronger euro would have squeezed exporters, suggesting that the slowdown was not entirely attributable to the weather. However, early GDP releases from France, Spain and Italy have shown that the southern member states, which were not impacted by the weather, did not experience a dip in growth. Spain, for example, posted a 0.7 percent GDP increase, while Italy experienced 0.3 percent of growth.
“Investors will probably remain nervous until there is a clearer signal of a pick-up in growth; however, we are confident that the economic slowdown recorded in the first quarter in the euro zone was largely a result of the adverse weather experienced in February and March,” says Zangana.
“Economic growth should rebound significantly in the second quarter, making up for some, if not all, of the lost momentum seen recently. We therefore continue to expect the European Central Bank to tread the path towards ending quantitative easing in September, and raising interest rates in early 2019.”
