After two consecutive quarters of negative growth, euro zone GDP rose by a better-than-expected 0.3% in the first quarter. The question is, where do we go from here? Initial indicators for the second quarter are mixed. The European Commission's Economic Sentiment Index for April was disappointing, with weak activity in the service sector and weak manufacturing production. Although the PMI rose in April, it showed the industry is still in contractionary territory. It seems that inventory adjustments have not yet run their course, but we expect that excess inventory will be sufficiently reduced in the second half of this year, making it possible to further expand production.
The euro zone unemployment rate remained at a historic low of 6.5% in March for the fifth consecutive month. However, the tight labor market appears to be easing somewhat. The European Commission's worker hoarding indicator fell in April and is now clearly below last year's levels. Although the number of job openings is still high, it is on the decline, and the employment expectation index is currently on a downward trend.
All these indicators remain above historical levels, and unfavorable demographics make it unlikely that unemployment will rise significantly. Rising real wages will continue to support consumption over the coming quarters.
