Bad news for the Eurozone
April 28, 2023 1:24 pmVideo
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The euro reacted negatively to the GDP data for the first quarter of this year, and there are objective reasons for this. The GDP growth was not as good as many had expected, and considering that not much was expected from it in the first place – only 0.2% growth for the first three months of this year – a 0.1% increase after zero progress in the 4th quarter of 2022 does not look like much of an achievement.
Yes, the Eurozone has avoided a winter recession due to growth at the beginning of this year, even though inflation remains a threat number one for the region’s entire economy. However, more than this will be needed to maintain strong arguments from European politicians that they have the situation under control and that high-interest rates do not pose as terrible a risk as many think.
Now, as the first quarter approaches, which could be the best for the Eurozone this year – considering the darkening picture in the labor market and where our core inflation is rapidly heading – how policymakers will act next week regarding interest rates is a big mystery. They are no longer expected to raise borrowing costs by 0.5% unanimously. The best-case scenario we can hope for: is an increase of 0.25% in May and another similar increase at the central bank’s next meeting this summer.
As for the statistics, the Eurozone’s economy grew by only 0.1% in the first quarter, falling short of the median estimate of 0.2%. France and Italy rebounded after negative figures in the final months of last year, while Spain also picked up steam and Germany stalled. Nevertheless, bad news on inflation forced risk asset buyers to reassess their stance on the current situation as consumer price growth accelerated in France and Spain this month. These figures will surely heat up May debates on how large an interest rate hike the European Central Bank will choose next time.
After the report’s release, European Commissioner for Economy Paolo Gentiloni stated that the European economy is feeling better than expected, even though core inflation is slowing down. “These are encouraging news that shows that the EU economy continues to demonstrate resilience against a complex global background,” Gentiloni said at a briefing.
He spoke alongside ECB President Christine Lagarde, who emphasized that she could not comment on monetary policy due to the central bank’s quiet period before next week’s meeting. Instead, she raised issues about fiscal policy, which will be discussed at the Eurogroup meeting this weekend.
The euro, not wanting to postpone everything indefinitely, continued its decline against the US dollar. The bulls definitely have chances for growth, but they need to stay above 1.0980 and take control of 1.1025 as soon as possible. Only this will push the euro towards a new resistance of 1.1063, opening the way to 1.1096. In case of a decrease in the trading instrument and a breakthrough of 1.0980, one can say goodbye to bullish prospects. In such a case, it is advisable to postpone purchases until 1.0940 or only show activity in the area of the next support at 1.0910.
The material has been provided by InstaForex Company – www.instaforex.com
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