Ireland skews eurozone growth data
At a Glance
Lead — The recent commentary highlights how Ireland's peculiar GDP accounting has significantly impacted eurozone growth figures, reflecting a contraction of 12.1% in Irish growth and dragging the eurozone into negative territory. Per the full note , this adjustment notably cut 0.5 percentage points from overall eurozone growth. With inflation on the rise and anticipated ECB rate hikes, the desk expects a continued deceleration in economic activity across the region despite Ireland's contribution becoming less of a drag in the upcoming quarters.
Key Takeaways
- 01Ireland's GDP accounting is skewing eurozone growth metrics, greatly influencing overall figures.
- 02A contraction of 12.1% in Irish growth has detrimentally affected eurozone GDP readings.
- 03Rising inflation towards 4% is prompting expectations of two ECB rate hikes before year-end.
- 04Composite PMI dropping to 48.5 suggests recessionary conditions and potential stagnation in the eurozone.
Full Analysis
What the desk is arguing
The desk positions that Ireland's GDP accounting quirks have skewed eurozone growth metrics, indicating a faltering underlying economic momentum. Specifically, the negative revision of 0.2% in eurozone GDP for Q1 2026, driven mainly by Ireland's decline, raises concerns about the overall health of the eurozone economy as it grapples with rising inflation and the possibility of ECB tightening.
To support this view, the desk cites the Composite PMI's drop to 48.5, indicating recessionary conditions, alongside the expectation of two ECB rate hikes by year-end despite inflation nearing the 4% mark. A solid reliance on multinational presence in Ireland, especially in the pharmaceuticals sector, continues to distort the true economic picture.
While eurozone growth excluding Ireland holds positive, the desk is wary of potential stagnation as consumer sentiment remains subdued. Should these trends persist, they could affect monetary policy outlook and market positioning significantly.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with the range spanning from 1.04 to 1.12. Notably, jpmorgan anticipates a target of 1.10 by March 2026, aligning with our desk's outlook, while bofa predicts a more conservative target of 1.04 for the same tenor.
This perspective closely mirrors jpmorgan's position, indicating a bullish undertone from the desk in contrast to bofa's more bearish stance. Given these diverging targets, the desk's call aligns towards the higher end of the consensus spread, advocating for resilience in the euro relative to current pressures.
How other firms see it
Several firms are aligned with this cautious view, including jpmorgan and deutsche, both indicating bearish sentiments towards eurozone growth prospects. Meanwhile, bofa and credit suisse express contrary views, projecting a stronger euro as they anticipate a willful recovery supported by potential ECB actions.
Moreover, the EUR/USD trajectory will mirror the upcoming ECB rate decisions and inflation indicators, following the patterns established in recent months. Traders should keep a close eye on PMI readings as they will be critical in shaping sentiment in this regard.
Market Implications
Watch for EUR/USD to hold around the 1.075 level, as further PMI data will be pivotal in shaping market sentiment towards eurozone growth and ECB rate policy. Additionally, any shifts in inflation data could prompt recalibrations in positioning leading into Q2.
From the original
Articles Ireland skews eurozone growth data 10:45 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Although quirks in Irish GDP accounting drove the eurozone’s negative growth reading in the first quarter, the underlying pace of activity is clear
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