Not just traders: today there were also the President of the ECB Christine Lagarde and the various members of the Eurotower Board of Directors to keep their eyes glued to the screens, to take stock of the situation, after the major announcements on inflation and GDP in the euro area, relating to the first quarter of the year, which came from Eurostat, but also from the various economies of the bloc.
Eurostat announced that, in April, euro area inflation remained stable, rising at a year-over-year pace of 2.4%, the same rate as in March. On a monthly basis, the trend was an increase of 0.6%.
As regards GDP, Eurostat also announced that growth during the first quarter of the year was +0.3%.
All good, in short, but not for the markets: in fact, from the numbers released today it emerged that, for Lagarde’s ECB, cutting rates is not a move that can be defined as truly urgent.
The bloc’s economy has proven resilient, managing to avert the nightmare of recession. However, inflation also confirmed its resilience and did not fall.
The picture that emerged today from the roundup of macro data does not correspond at all to the markets’ wishes: on the other hand, if it is true that traders, even before the last meeting of the Governing Council on 11 April, were now resigned to pricing the arrival of the first Eurozone interest rate cut at the next meeting on 6 June, it is equally true that, after the mistakes made in the past, no central banker he is willing to put his hand in the fire, guaranteeing the trend of inflation and, consequently, of rates.
Fed docet, some economists might point out, recalling the latest data arriving from the macro front of the United States, which confirmed that the threat of inflation has been anything but averted. So much so that now there is even talk of the risk that the Fed will raise rates again after the publication of the parameter preferred by the US central bank, which confirmed the price shock.
However, One of the sudden headaches that have hit the ECB is the interruption of the disinflationary process in Germany.
Another has just arrived and bears the name of GDP of Spain which, in the first quarter of 2024, rose by 0.7% on a quarterly basis and by 2.4% on an annual basis.
He did very well too Portugal’s GDP rose by 0.7% – as in Spain – on a monthly basis, in the first quarter of 2024, at the same pace as in the fourth quarter of 2023. On an annual basis, the Portuguese GDP trend was an expansion of +1.4%. Less exciting numbers for Italy, in this case also on inflation.
But today it was also made known the consumer price index of France.
In particular, the national statistics office INSEE announced that, in April, France’s consumer price index rose by 2.2%, slowing down compared to +2.3% in March: at first glance, good news for Christine Lagarde’s ECB and for those hoping for a rate cut in June; the turnaround in French inflation was caused above all by the slowdown in the growth of food prices, which amounted to +1.2%, and tobacco prices, equal to +9%.
At the same time, faced with an ECB that continues to confirm itself as more than vigilant when looking at the dynamics of inflationary pressures, pay attention to the trend in energy prices, which in France have risen at a rate of 2.8%compared to +3.4% in March.
Inflation in the services sector continued to record an increase of +3%. Not entirely comforting numbers, which are added to those relating to the entire Eurozone, and which were released by Eurostat.
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Returning to the GDP growth of the euro area, the numbers that were released today by Eurostat are preliminary, and therefore subject to revision.
The statistics agency specified that the trend of the gross domestic product of the Eurozone was, in the first quarter of 2024, equal to +0.3% on a quarterly basis, and an increase of 0.4% on an annual basis: a trend that was better than analysts’ estimates, and which followed the contraction of the bloc’s GDP which, in the last quarter of 2023, amounted to -0.1%. By technical recession, we generally mean a situation in which the economy reports two consecutive quarters of negative growth. This was not the case for the Eurozone. At the same time, the other key data communicated today by Eurostat, namely that relating to inflation in the euro area in the bloc, indicated an inflation whose growth rate, on an annual basis, remained stuck at + in April 2.4%, as in March, in line with expectations, and a core inflation that rose to a rate of 2.7%, in this case slowing down compared to the growth of +2.9% in March. In the services sector, inflation weakened, rising at an annual rate of 3.7%, compared to +4% in March; but the prices of food, alcohol and tobacco increased at a rate of 2.8%, compared to the previous +2.6%. The energy component also produced less deflationary effects compared to March, falling by 0.6% on an annual basis, compared to the decline in March, equal to -1.8%. In such a situation, Moody’s Analytics senior economist Kamil Kovar pointed out that the Eurozone economy emerged from the stagnation phase “with a bang rather than a sigh”. Excellent for Europe, but less so for those who have continued in recent months to make various appeals to Christine Lagarde’s ECB to hurry up and cut rates.
In fact, Kovar believes at this point that the European Central Bank could be encouraged by these data to be even more cautious in cutting interest rates. At the same time, the Moody’s economist highlighted that, from the data relating to the GDP of the euro area, it emerged that the consumption component was confirmed as weak in various sectors, and that only the construction sector, accomplice the weather factor, together with the positive trend in net exports, ensured the solid growth of the economy. In any case, these elements could be enough for the ECB which, according to Kovar, should refer “to the solid GDP numbers to gradually lower rates”. The verdict? For the Moody’s expert, “a rate cut in June could still occur, while a further cut in July has just become more unlikely”.
In short, the numbers arrived today from the macro front have exacerbated the rate migraine that has been bothering Christine Lagarde for a while, especially if we consider the other no that arrived yesterday from Germany, namely the preliminary estimate of German inflation, relating to the month of April : inflation has returned to growth for the first time since December, accompanying the recovery of the economy, which was confirmed today by the GDP data for the same month. The trend was such that the Financial Times did not hesitate to speak of persistent (sticky) inflation, which immediately had the effect of decreasing the markets’ expectations on the rate cuts that the Eurotower will end up announcing this ‘year. In April, in fact, Germany’s consumer price index rose by 2.4% on an annual basis, accelerating the pace compared to +2.3% in March, and compared to the unchanged figure that had been expected by analysts interviewed by Reuters. It is true that the national agency Destatis also reported that core inflation slowed down, going from +3.3% to +3%. However, Spain’s inflation also increased. The numbers, including today’s, confirmed a persistence of inflation which, certainly, will not have pleased Lagarde, as an analysis by ING warned.
To be precise, Carsten Brzeski, head of ING’s global macro division, warned that if “the persistence of (German) inflation continues, the headline figure could rebound to 3% next month.” According to the expert, yesterday’s data practically reminded us of “how difficult it will be for the ECB to be able to cover the last mile of the path it started” in July 2022 “to bring inflation growth back to the level in a sustainable way”. target of 2%”. For ING, the rate cut scheduled for June will still take place. But, as the Moody’s analyst commented, “looking beyond June, the (central) bank’s path is anything but clear”. Obviously among the reasons for this uncertainty, on the eve of the Fed’s announcement on rates, there is obviously also that of the decisions that the American Central Bank will take. But certainly, Brzeski explained, “the recent reacceleration of inflation in the United States will have rekindled fears about inflation in the Eurozone too, at least among the hawks of the ECB”. Furthermore, there is “the recent rise in oil prices, in addition to the factor of the weak euro”, both elements which “could easily lead the ECB to revise its inflation projections for 2025 upwards again beyond 2 %, weakening the basis for other rate cuts in addition to the one expected for the June meeting.”
(currently being written)
