Eurozone economy boosted by household spending

The eurozone economy continued to grow in the first quarter of the year, official data showed on Thursday, fuelled in part by strong household spending.

Eurostat, the European Union’s statistics body, said that seasonally-adjusted GDP across the eurozone rose 0.4% quarter-on-quarter in the first three months of the year, compared to growth of 0.2% in the fourth quarter of 2018. That was in line with Eurostat’s initial estimates and analyst forecasts.

The year-on-year rate also met the consensus, unchanged at 1.2%.

Household final consumption expenditure rose by 0.5%, compared to growth of 0.3% in the previous quarter, while gross fixed capital formation rose 1.1% compared to the 1.4% reported at the end of 2018. Eurostat said both segments made a positive contribution to first quarter GDP.

Across all 28 member states, GDP was ahead 0.5% in the first quarter compared to 0.3% in the previous quarter.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "These data confirm that the eurozone economy performed strongly at the start of the year, at least compared to the survey data.

"The headline was lifted by a 1.1% quarter-on-quarter jump in investment, which is impressive following the punchy 0.8 percentage point upward revision to…1.4%. Note though that inventories fell sharply on the quarter, denting gross capex."

Vistesen added that while there were positive signs for the second half and 2020, "risks are tilted to the downside for second-quarter growth. We think that the Germany economy in particular is poised for a setback thanks to mean-reversion in consumers’ spending growth and a slowdown in net investment".

Chris Beauchamp, chief market analyst at IG, said: "While eurozone GDP was better than expected in the first quarter, the outlook remains uncertain, which may help prod [European Central Bank president] Mario Draghi to err on the dovish side. European indices are trading in a positive if cautious fashion."

The ECB is meeting to discuss interest rates lunchtime on Thursday.