Eurozone stages a rally

The eurozone’s economy rebounded during the first three months of 2019, posting quarter-on-quarter growth of 0.4%. Italy emerged from recession, supported by export activity. The news helped to ease some of the burden on policymakers at the European Central Bank. Elsewhere, the eurozone’s manufacturing sector suffered its greatest contraction in almost six years during March.

  • The German government cut its economic growth forecast
  • Germany’s economy continued to “lose steam”
  • Spain’s governing Socialist party failed to gain an overall majority in the General Election

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The eurozone’s economy rebounded during the first three months of 2019, posting quarter-on-quarter growth of 0.4% following growth of 0.2% in the previous quarter. On an annualised basis, the eurozone’s economy expanded by 1.2%. Italy emerged from recession: the country’s economy grew at a quarterly rate of 0.2%, supported by export activity. Meanwhile, Spain expanded by 0.7% and France grew by 0.3%. The news helped to ease some of the burden on policymakers at the European Central Bank (ECB): the ECB cut its macroeconomic forecasts for the euro area in March, and ECB President Mario Draghi promised further support for the eurozone if necessary. 

“Business confidence worsened amongst German companies”

Spain’s governing Socialist party won 29% of the vote in the country’s latest General Election, but did not garner sufficient support to command an overall majority. German banks Deutsche Bank and Commerzbank called off merger talks during the month. The Dax Index rose by 7.1% in April, and the CAC 40 Index climbed by 4.4%.

The eurozone’s manufacturing sector suffered its greatest contraction in almost six years during March, according to IHS Markit. Business activity and confidence have been undermined by “concerns over trade wars, tariffs, rising political uncertainty, Brexit, and … deteriorating forecasts for the economic environment both at home and in export markets”. 

Germany’s government cut its 2019 economic growth forecast from 1% to 0.5%, citing the negative effects of trade conflicts upon the global economy, and of the ongoing Brexit process. Economic Affairs Minister Peter Altmaier advised: “the current sluggishness in the German economy must serve as a warning”. Germany’s economy continued to “lose steam”, and business confidence worsened amongst German companies, according to the Ifo Institute’s Business Climate Index, which reported an “evaporation” of March’s “gentle optimism”. 

Credit ratings agency Fitch confirmed that the EU’s “AAA” rating and “stable” outlook would not be affected by a no-deal Brexit. Fitch believes the short-term risks to the EU’s budget are “manageable”, although the gap in the EU’s budget contributions caused by the EU’s departure could pose a medium-term risk to the EU’s rating. 

The unemployment rate in the eurozone edged down from 7.8% to 7.7% in March. Unemployment remained in the double digits in Greece, Spain and Italy; nevertheless, over the 12 months to March, unemployment rates fell in every eurozone member state apart from Denmark and Sweden.


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