Euro-zone outperformance will be short-lived

Euro-zone's GDP figures in Q1 confirmed that the currency union outgrew both the US and UK in the first quarter. But with signs that the Greek crisis is starting to constrain the recovery, the euro-zone's outperformance is likely to be short-lived. The provisional euro-zone GDP figures confirmed the message already given by the national data that the currency union's economy expanded by 0.4% in Q1. This is a touch stronger than Q4's 0.3% gain and above the equivalent figures for both the US and UK for the first time since Q1 2011. 
However, the gain was a bit smaller than the consensus forecast of +0.5%, though in line with expectation. Although France grew by a solid 0.6% - its biggest quarterly rise since Q2 2013 - Germany managed only a 0.3% gain, well below Q4's 0.7% increase and the consensus forecast of +0.6%. Spain had grown by 0.9%, while the Netherlands and Portugal grew by 0.4% and Italy by 0.3%. Note, though, that Greece contracted for a second consecutive quarter, and hence fell back into recession, after the brief burst of growth seen last year.
The breakdown of euro-zone GDP is not published at this stage. But country-level information suggests that household spending rose quite strongly, presumably thanks to energy-related price cuts. In contrast, net trade appears to have acted as a drag on growth, suggesting that the weaker euro has yet to have any significant positive effects on the export sector. Note though, that euro-zone industrial production data for March also released today revealed a solid gain of 0.8% in Q1 overall. 
"Low levels of inflation should continue to support consumer activity in the coming quarters. And the lower euro should eventually help exports. But there are tentative signs from some surveys like the composite PMI that the pace of recovery mayhave flattened off, perhaps reflecting the negative effects of the Greek crisis", notes Capital Economics.  
Against that background, euro-zone GDP is expected to grow by about 1.5% this year, before growth slows again to around 1% in 2016 as the beneficial effects of low oil prices and the drop in the euro fade again. But growth could be much weaker if the Greek situation ends messily.