Societe Generale economists highlight that Euro area activity data in Q1 have been somewhat disappointing, especially German industry, but they see limited upside risk to their cautious 0.1% qoq German GDP forecast. They also stress resilient Euro area fundamentals, supported by strong private balance sheets, AI and energy investment, German fiscal stimulus and stabilizing housing markets.

German data weak yet manageable

"Once again, this is an oil crisis but not a broad energy one for Europe and the impact on activity should be less than in 2022. This is good news especially as 1Q activity data were a bit on the disappointing side."

"In Germany, industrial production is still falling slightly on a year-over-year basis."

"At the very least, there aren’t upside risks to our cautious real GDP growth forecast for 1Q in Germany (0.1% qoq)."

"As we discussed recently, we don’t see a similar risk of strong indirect and second-round effects on wage growth as the one that caught the ECB off guard in 2021-22, but we still see significant resilience in the euro area economy, fuelled by strong private sector balance sheets, rising needs for AI and energy investment, the German fiscal stimulus and stabilising housing markets."

"A particular concern is that the demographic situation in many countries may sustain labour market tightness which in turn could result in early upward pressures on wages in response to the energy price shock and the German fiscal stimulus."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)