Economic growth slowed across Europe at the start of the year, with Germany seeing its pace of expansion cut in half amid weaker trade.
The 0.3 percent increase in Europe’s largest economy was softer than forecast and the weakest in more than a year. Dutch and Portuguese growth also cooled more than expected in the first quarter, while a similar trend was seen across central and eastern Europe.
A deceleration in euro-area momentum to 0.4 percent was confirmed, while investors’ expect- ations for the outlook remained close to the lowest since 2016. That raises the question for the European Central Bank whether this is merely a soft patch or indicative of something more alarming.
So far, officials have largely dismissed the sluggish start to the year — blaming factors such as colder weather — and expressed confidence that weakness will dissipate. ECB Governing Council member Francois Villeroy de Galhau argued that euro-area growth remains solid and broad-based and that policy makers were still likely to halt asset purchases this year.
“Whether this marks the end of a robust expansion or is just a bump in the road is crucial to understand as the ECB mulls the end of asset purchases. We think a modest amount of momentum has been lost, but that 2Q will see a rebound,” said Jamie Murray and David Powell, Bloomberg Economics.
The European Commission has also downplayed concerns and this month maintained its forecast that full-year growth will almost match the decade-high pace hit in 2017. Still, there are threats, including rising trade protectionism and a stronger euro that could act as dampers on the expansion in Germany and the euro zone.
Some of those issues were highlighted by the International Monetary Fund in a report published on Tuesday. While it sees “strong growth” for now, the “favorable outlook is subject to several risks that are mainly to the downside over the medium term.”
Germany’s statistics office said first-quarter growth was bolstered by a pickup in equipment investment and construction and a slight increase in private consumption. Government spending declined for the first time in almost five years, with exports and imports also down.