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Fitch: German GDP Shows How Eurozone Growth is Gaining Traction
May 12, 2017 / 12:14 PM / 6 months ago

Fitch: German GDP Shows How Eurozone Growth is Gaining Traction

(The following statement was released by the rating agency) LONDON, May 12 (Fitch) Germany's first-quarter GDP highlights the key factors that are contributing to a persistent and broad-based economic recovery in the eurozone, Fitch Ratings says. German GDP rose 0.6% quarter on quarter in 1Q17, the Federal Statistics Office said today. The seasonally and calendar-adjusted annual increase was 1.7%. Provisional data showed that continued increases in household and general government consumption, rising foreign trade, and a jump in capital formation helped by a mild winter boosting construction, all contributed. The quarterly GDP growth is slightly higher than Fitch's forecast of 0.5% in our March Global Economic Outlook and highlights several trends that underpin the eurozone's cyclical recovery. Improving labour markets provide a key support to household consumption growth. (Away from Germany, flash estimates on Friday showed that French non-farm payroll employment increased for an eighth consecutive quarter.) The pick-up in global growth remains on track and we forecast global growth at 2.9% this year from 2.5% in 2016. Loose monetary policy is feeding through to rising bank credit to the private sector and contributing to the strength of the German housing market, where orders for new buildings are growing. These developments are reflected in our view that eurozone GDP growth will remain close to the above-potential rates seen in recent quarters through 2017-2018, resulting in annual growth of 1.7% this year - in line with the European Commission's latest forecast - and 1.6% next year. Our forecasts are bolstered by the fact that near-term political risks have eased, previously a key downside risk. Furthermore, fiscal policy is now a tailwind rather than a headwind for growth. We think the fiscal impulse will boost growth by 0.2pp per year on average in 2017 and 2018. Risks to our forecasts include external factors such as slower growth in China, a less predictable US trade policy, the forthcoming Brexit negotiations and higher global rates as the Fed monetary tightening cycle continues. Inflation in the eurozone has been volatile since the beginning of 2017 (annual Spanish CPI inflation rose to 2.6% in April after dropping to 2.3% in March, for example), but we expect subdued underlying inflation to prevail over the coming quarters, not least due to still low nominal wage growth. A range of Fitch's macroeconomic research, including our recent Global Economic Update, our bi-monthly 20/20 Vision chart pack, the divergence of headline and underlying eurozone inflation and the impact of shifting fiscal policy, is available at www.fitchratings.com or by clicking on the links. Contact: Gergely Kiss Director, Economics +44 20 3530 1425 Fitch Ratings Limited 30 North Colonnade London E14 5GN Brian Coulton Managing Director Chief Economist +44 20 3530 1140 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research 20/20 Vision - April 2017 here Divergence of Headline and Underlying Inflation: A Challenge for the ECB here Fiscal Policy Now Supporting Growth here Global Economic Update - May 2017 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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