Is the Eurozone’s Growth Just Smoke and Mirrors? Unpacking Inflation Signals That Could Rewrite the Playbook
Is the sharp downturn in the eurozone’s 1Q GDP really a sign that the whole economy’s on the ropes—or just a quirky Irish wobble throwing off the numbers? Societe Generale’s strategists seem to think it’s mostly the latter, pointing out that if you take Ireland out of the equation, growth was actually humming along at a modest 0.3% quarter-over-quarter. Meanwhile, some of the hard facts coming out of France are surprisingly upbeat, suggesting that fears of a technical recession there might be more bark than bite. Inflation, that always pesky beast, looks like it’s gearing up to peak sometime around early 2027—giving policymakers a bit of breathing room before the next big move. It’s a tangled web for sure, but one thing’s clear: not all dips mean doom, and sometimes what looks like trouble is just a temporary blip. Curious to see how this unfolds? LEARN MORE
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.)
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