EU Economy Remain Steady as Germany Factory Orders Fall

Today, Eurostat announced the Q1 GDP numbers for the euro area and the EU28. In the first quarter, the economy in the region expanded at a quarterly rate of 0.4% as expected. It rose at an annualized rate of 2.5%, also as expected. During the same time, the US economy expanded by 0.5%, which was lower than the fourth quarter rate of 0.7%. It rose at an annual rate of 2.8%. As shown below, Latvia and Poland were the fastest growing economies in the region.

According to Eurostat, the growth in the quarter was attributed to household consumption which rose by 0.4 in the EU28. In the previous quarter, it had grown by 0.3%. At the same time, the growth was hampered by a lower gross fixed capital formation which rose by 0.8% after gaining by 1.2% in the previous quarter. Exports were also a laggard because they fell by 0.3%. Imports remained unchanged at 1.8%.

These numbers came shortly after data from Germany showed slowed factory orders. The data showed that the orders in EU’s largest economy fell unexpectedly for the fourth straight quarter. They slid by a seasonally-adjusted rate of 2.5%. Economists were expecting the orders to rise by 0.8 percent. From an year earlier, the orders fell by 0.1%, which was the first decline since 2016. This data will likely play a role in next week’s ECB’s policy meeting where they will discuss their stimulus program. In these talks, we expect the officials to discuss the ending of the QE program.

The concerns among traders is on what to expect after the ECB stops the quantitative easing program. In this program, the bank buys more than $30 billion worth of bonds and mortgage backed securities every month. They are concerned on who will buy the bonds after the ECB stops buying. Will the private sector join in?

The inflation data released last week will make it easier for the ECB to end the QE and start normalizing. As shown below, the CPI rose last month to the highest level since May last year. A rising inflation rate would necessitate the ECB to start normalizing. However, the concern is that some countries in the region are not ready for a rate increase.

Another concern for the ECB is the ongoing threat for a trade war between the EU and the United States. The threat is now real as the US moves ahead with the tariffs on steel and aluminum from the region. The EU has already signed a petition with the World Trade Organization. They have also announced retaliatory measures on the US decision. The US will be expected to place retaliatory measures on the EU, which will lead to a full-blown trade war.

There is also a concern on the Iran deal, which the US announced three weeks ago. The reintroduced tariffs will likely hurt European companies, which will be barred from doing business with the country. Yesterday, the EU wrote a letter to the US seeking exemptions to do business with Iran. The response will not be positive.

The Euro has gained significantly against the dollar, pound, and Japanese yen as traders expect the end of the QE. This too will be a source of concern among the ECB officials who favor a weaker dollar.

The post EU Economy Remain Steady as Germany Factory Orders Fall appeared first on Forex.Info.