Euro-zone GDP growth was stronger than expected in Q1, at 0.4% q/q, but we suspect that it will slow again in the coming quarters. Activity was flattered by the comparison with a weak end to 2018 and construction was boosted by unusually good weather. Moreover, business surveys such as the PMIs and ESIs have been consistently downbeat this year and remained weak in April. While the discrepancy between hard and soft data is a bit of a puzzle, the surveys are generally less volatile and, in this case, we suspect that they paint a more accurate picture of underlying economic conditions. Meanwhile, the rebound in headline inflation in April was due to Easter timing effects: inflation will drop back again in May. And with core inflation likely to remain stuck at around 1% for the foreseeable future, we think the ECB will loosen monetary policy further before long.
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