Lord Abbett: Eurozone

Eurozone: Growth, Inflation Data Bring Good News

Revised data on Eurozone GDP and inflation may help ease policy challenges for the European Central Bank.

Second releases of economic data reports are usually of little interest except to those whose job it is to look closely at such things. But in the past week, second releases of Eurozone data have revealed some noteworthy nuance on a longstanding theme: Europe’s high inflation and war-damaged growth.

On May 17, the second release of Eurozone data—which revises the numbers from the initial flash report released April 29–showed higher economic growth than the first release, with real gross domestic product (GDP) up 0.3% quarter-on-quarter, versus a 0.2% in the preliminary release. Given everything that transpired in the first quarter—war, commodity shock, and a staggering array of economic sanctions directed at Russia after its invasion of Ukraine—this is a pretty good result.

There was more encouraging news from the second release of April inflation data on May 18. This revision often provides a clearer picture on Eurozone prices because of its expanded detail; the release showed headline inflation a little lower than the April 29 flash report (7.4% year-on-year, versus 7.5%). Although core inflation in the Eurozone likely will remain elevated for some time, the revised April figures show some incipient signs of relief that we will need more data to confirm.

In the meantime, recent comments from European Central Bank members have solidified expectations of three 25-basis point rate hikes over the next year as they chart a policy course through a still-growing economy and high trend inflation. While the revisions to the April growth and inflation data are not large, the direction of the revisions is important in a market environment that has investors braced for less supportive outcomes.  Both suggest that the policy challenges for the ECB may not be quite so daunting in the months to come.

Source: https://www.lordabbett.com/en-us/financial-advisor/insights/markets-and-economy/eurozone–growth–inflation-data-bring-good-news-b—b-.html