2016.06.1606:18:00UTC+00Eurozone Growth Performance Unlikely to Sustain in Q2

Eurozone’s growth performance is unlikely to sustain in the second quarter after registering an upbeat performance in the first quarter, surpassing that of both the US and the UK. Growth remained supported by domestic demand, with household spending supporting a rise in real income.

The Eurozone economy expanded by 0.6 percent q/q in the first quarter, outperforming both the US and UK. Domestic demand including 0.6 percent q/q rise in household spending, boosted real incomes and helped control rise in the rate of unemployment and lower oil prices.

Further, investment spending also increased by 0.8 percent q/q. Meanwhile, government consumption likewise also added to overall growth. Net exports, however, remained a drag on overall growth for third consecutive quarter. In the major Eurozone economies, quarterly growth remained strong with Germany registering 0.7 percent q/q growth, France 0.6 percent q/q and Spain 0.8 percent q/q, while it was weaker in Italy 0.3 percent q/q.

"Annual headline inflation should return to positive territory in coming months, but will remain well below target," the bank said in a research note.

The pace of Eurozone growth, however, is expected to slow in the second quarter, consistent with a more moderate pace of expansion signaled from business surveys. The latest PMI surveys seem to be consistent with growth of around 0.3 percent q/q.

Moreover, the economy is expected to continue to grow at a moderate pace, helped by the ECB’s policies to stimulate lending. For the year as a whole, the Eurozone economy is expected to grow by around 1.6 percent, matching its 2015 outturn, Lloyds Bank reported.

In particular, while the unemployment rate has come down from a peak of 12.1 percent in the past three years, it remains in double digits at 10.2 percent and points to continued weakness in domestic wage pressure.

"Owing to a weak first half, we expect headline inflation to average only 0.3 percent this year, rising to 1.5 percent in 2017," Lloyds Bank reported.