Euro area data this week was broadly in line with our scenario of a temporary moderation in growth, said Danske Bank. Consumer data confirmed a moderation in household spending in Germany and France. German retail sales did rise by 1.7% m/m in April but this followed a 1.4% m/m decline in March, so overall spending has been broadly flat over the past two months. Similarly, in France, household goods spending rose slightly in April but overall it represents a slowing in the trend from early in the year. It does not represent outright weakness but simply a moderation from temporary strong spending related to the ‘oil tax cut’. This is reflected also in slightly lower consumer and business confidence in recent months.However, the medium-term outlook still looks favourable and this was confirmed by the release of M1 growth for April. Adjusting for inflation, real M1 growth rose further to 10.5% y/y, which points to around 3% growth in early 2016. “Monetary policy is starting to work and it is leading to stronger credit growth and thus more money in the pockets of consumers and businesses for spending and investments. The euro recovery will also be supported by a moderate increase in both US and Chinese growth in coming quarters as well as the weak euro. These factors should benefit the export-oriented manufacturing sector” notes Danske Bank in a report
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