Euro area economy likely grew strongly in Q1, growth mainly driven by domestic demand

The euro area economy is likely to have grown strongly in the first quarter of 2016, while domestic demand is expected to have remained the main growth driver, according to Societe Generale. Hard data, such as new car registrations and industrial production implied that the underlying domestic economy continues to strong in spite of global headwinds and market volatility at the turn of 2016.

This was reflected towards the end of first quarter in sentiment indicators, with PMIs indicating to an economic growth if 0.4% q/q. The actual number is expected to be somewhat more than this at 0.5% q/q, noted Societe Generale. Country-wise, Germany is expected to contribute strongly with a q/q growth of 0.7%. Strong construction investment is likely to be the main growth driver. Meanwhile, French economy is expected to have expanded 0.3% q/q, with consumer expenditure mainly driving growth.

Italy and Spain are both expected to expand at a similar rate of 0.5% q/q. This will be an economic slowdown for Spain, mainly due to political uncertainty. However, for euro area as a while, growth of 0.5% q/q and 1.5% y/y will be a positive figure. The strong rebound is expected to continue in second quarter and beyond that, said Societe Generale.