Societe Generale strategists report that the euro area’s first quarter Gross Domestic Product (GDP) print turned negative, primarily due to a sharp downward revision in Irish GDP growth, which fell by -12.1% quarter-on-quarter (qoq) in Q1. This revision led to the euro area GDP growth being recorded at -0.2% qoq for the first quarter, a development described as 'a bit embarrassing less than a week before an ECB hike' [1].
Despite the negative headline figure, Societe Generale notes that the weakness is largely attributable to Irish volatility rather than broad-based economic softness. Excluding Ireland, euro area growth was 0.3% qoq, supported by stronger Purchasing Managers’ Index (PMI) readings and positive surprises in French industrial data [1]. The strategists highlight that while sentiment remains weak in Germany and France, the risk of a technical recession in France has diminished, with the likelihood of a second consecutive GDP decline in Q2 receding [1].
On the inflation front, headline inflation in the euro area was reported at 3.2% year-on-year in May, matching Societe Generale’s expectations. Underlying inflation also aligned with forecasts at 2.5%. Looking ahead, the strategists project that both headline and core inflation will peak around 3.8% and 2.8% year-on-year, respectively, in early 2027 [1].
CONCLUSION
The negative euro area GDP print for Q1 is mainly attributed to Irish volatility, with underlying growth remaining positive outside Ireland. Inflation remains in line with expectations, and the risk of a French technical recession appears to be fading. Market sentiment is cautious but not broadly negative, with inflation peaks projected for early 2027.