Economists from Societe Generale emphasize that euro zone activity data in the first quarter was somewhat disappointing, especially in the case of German industry, but they see narrow growth risk compared to their conservative forecast of German GDP at 0.1% q/q. They also highlight the eurozone’s stable fundamentals, supported by powerful private sector balance sheets, investments in artificial intelligence and energy, German fiscal stimulus and stabilizing housing markets.

Data from Germany are feeble, but manageable

“Once again we are dealing with an oil crisis, but not a broad energy crisis in Europe, and the impact on business is expected to be less than in 2022. This is good news, especially since the first quarter business data was somewhat disappointing.”

“In Germany, industrial production continues to decline slightly year-on-year.”

“At least there is no upside risk for our conservative forecast of real GDP growth in Germany for the first quarter (0.1% q/q).”

“As we recently discussed, we do not see a similar risk of strong second-round indirect effects on wage growth as the one that surprised the ECB in 2021-22, but we continue to see significant resilience in the euro area economy, driven by strong private sector balance sheets, growing demand for artificial intelligence and energy investment, German fiscal stimulus and stabilizing housing markets.”

“Of particular concern is that the demographic situation in many countries may maintain labor market tensions, which in turn may result in early upward pressure on wages in response to the energy price shock and the German fiscal stimulus.”

(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)