Euro zone economy slows as expected in first quarter

By Robert-Jan Bartunek

BRUSSELS (Reuters) - Euro zone economic growth slowed as expected at the start of 2018, although economists said temporary factors were partly behind the weakness and that the economy should continue to expand strongly this year.

Gross domestic product across the 19 countries sharing the euro currency expanded by 0.4 percent in the first quarter compared to the last quarter of 2017 and by 2.5 percent year on year, EU statistics agency Eurostat said on Wednesday.

Eurostat's preliminary flash estimate was in line with economists' forecasts, but well below the 0.7 percent quarterly rises seen in the previous three quarters.

 

The growth rate pushed the euro zone behind the United States, but still ahead of Britain, which registered its weakest growth since 2012.

Economic sentiment data slipped in March but remained broadly unchanged in April, leading analysts to forecast that the euro zone economy will ease back to still-healthy growth levels of about 2 percent year-on-year in the coming quarters.

But it was seen as unlikely to match the 2.5 percent expansion seen in 2017.

"Temporary factors, including unseasonably cold weather, striking workers, short-term bottlenecks and even an outbreak of the flu, appear to have weighed on GDP growth in Q1," economists at Capital Economics said in a note to clients.

"Given the high level of consumer confidence, we suspect that consumption growth will pick up in Q2 and help to push quarterly GDP growth back to around 0.5 or 0.6 percent."

Confidence took a dip in part over concerns about a trade war with the United States, which could still be sparked if Washington imposes tariffs on steel and aluminium imports from the European Union. A decision on this is due by June 1.

In a separate statement, Eurostat said unemployment in the euro zone was stable in March at 8.5 percent.

(Reporting by Robert-Jan Bartunek; Editing by Philip Blenkinsop and Catherine Evans)