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The unexpected strength of the eurozone recovery was the big surprise of 2017 and one of the main reasons why the U.K. economy outperformed gloomy pre-Brexit forecasts.
Eurozone output expanded by 2.3% in 2017, the strongest growth for a decade and far ahead of the consensus forecast among independent economists at the start of the year of growth of just 1.3%. Business and consumer confidence at the start of 2018 was the highest for 18 years, prompting economists to upgrade their expectations for growth this year to an average of 2.4%, up from a forecast of just 1.5% a year ago.
But are the wheels now coming off the recovery?
A string of weak data points to a disappointing first quarter. German exports of goods were down by 3.2% in February compared with January, defying consensus expectations of a 0.4% rise. German industrial production also fell by 1.5% in February, compared with a forecast of a 0.3% rise.
Fresh data this week suggests the slowdown is spreading: Italian industrial production decreased by 0.5% in February compared with the previous month, while manufacturing output fell in France for a second consecutive month.
This disappointment is reflected in equity markets: The Stoxx 600 index of leading European stocks is down 7% from its January peak.
Of course, a couple of months of weak data may not signify anything much. Most economists are currently inclined to think this is a temporary dip, offering explanations ranging from the cold winter across much of Europe, to the strength of the euro, to a bad dose of the flu which pushed up sickness rates in Germany.
Others have noted that recent survey data, which also has been weaker than expected, still points to healthy levels of growth: The eurozone composite PMI—a broad measure of economic activity—fell from 58.8 in January to 55.2 in March. That is still consistent with first quarter growth of 0.7%, lower than the 0.9% forecast in January but a long way short of a downturn.