The preliminary estimate of euro zone Q1 GDP confirmed that the economy grew by 0.8% Q/Q during the first three months of the year, sharply up from the 0.3% Q/Q growth rate in Q4. The first release of the breakdown shows that growth was led by gross fixed capital formation (2.1% Q/Q), but also household consumption (0.3% Q/Q) and government consumption (0.8% Q/Q) supported growth in the first three months of the year. The contribution from net-exports (0.1% Q/Q) was somewhat lower than could have been expected, while the change in inventories was flat in Q1. The details are quite strong with a nice contribution from investments, but this was for a significant part due to a weather-related rebound in construction. Nevertheless, growth is likely to slow in the second quarter after weaker eco-nomic data of recent, while also government consumption is likely to ease in the coming quarters, as fiscal consolidation weighs.
In April, German industrial production unexpectedly dropped, for the first time in four months. On a monthly basis, industrial production fell by 0.6% M/M, while the consensus was looking for a slight increase. The previous figure (for March) was upwardly revised from 0.7% M/M to 1.2% M/M. The details show that weakness was led by the construction sector, where production fell by 5.7% M/M, but also manufac-turing and mining production dropped in April (by 0.6% M/M). The decline was how-ever mitigated by rebound in energy (3.7% M/M). Within the manufacturing sector production of capital goods fell sharply (-1.5% M/M) and also consumer goods pro-duction dropped (-0.2% M/M) in Germany, while production of intermediate goods rose slightly (0.1% M/M). While it is a disappointing figure and the German economy is expected to weaken in the second quarter, there is no need to worry as the slight decline in production is not really surprising after the strong data of the previous three months.