Euro area: Growth noise and inflation outlook – Societe Generale

Societe Generale strategists argue that the negative 1Q Gross Domestic Product (GDP) print mainly reflects Irish volatility rather than broad weakness, with ex‑Ireland growth at 0.3% qoq and stronger PMI and French industrial data. They see risks of French technical recession receding and project headline and core inflation peaking around 3.8% and 2.8% year-on-year in early 2027.

Irish distortions and inflation peaks

"The revision to negative territory for euro area GDP growth in 1Q is a bit embarrassing less than a week before an ECB hike."

"The main surprise was a very sharp downward revision of Irish GDP growth in 1Q to -12.1% qoq. Euro area GDP growth is now in negative territory in 1Q (-0.2% qoq)."

"And while most of the actual weakness in sentiment is in Germany and France, French hard data also surprised to the positive side."

"The risk of a second consecutive fall in GDP in 2Q has therefore receded in France."

"For its part, headline inflation came out in line with our expectations at 3.2% yoy in May. Underlying inflation was also in line with our expectations at 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)