GDP fell 0,2%qoq (down 1%yoy) in the Euro area after -0.6%qoq in Q4 2012. Today’s news are disappointing as they show that the countries at the centre of the Euro area did not recover as much as initially expected. Germany posted only 0.1%qoq growth, after a 0.7%qoq decline in Q4 and France dipped further into recession with a 0.2%qoq decline. The persistent economic weakness in Europe is likely to raise calls for further monetary policy easing, through quantitative measures, and for looser fiscal policy. However, it is unlikely that further monetary easing will have a strong impact on the recovery given that in the last two quarters the ECB has lowered its main refinancing rate and increased further the size of its assets without a meaningful impact on the economy.
In Portugal, GDP fell 0.3%qoq in Q1, an improvement after 1.8%qoq decline in Q4, but nevertheless a disappointing number as most analysts were expecting a stabilisation. Though the details are still sketchy, the change in seasonality and other temporary effects that caused the sharp decline in Q4 appear to have been corrected in Q1, but at the same time the bad weather had a negative impact on construction. According to the Statistics Office, investment in construction suffered the most significant blow. Should GDP stabilise at this level, annual growth would be -2.3%. In absence of a recovery in Europe in the coming months, it may be necessary to revise down further the current GDP forecasts.