Economy Watch: European View (May 2024)

The Euro Area economy expanded in Q1 by a better-than-expected 0.3% quarterly-over-quarter. Solid improvements in business and consumer confidence in April suggest economic recovery will resume in the short-term. Headline inflation remained unchanged at 2.4%, but core inflation moderated from 2.7% to 2.4%. The fall in core inflation supports the start of ECB interest cuts in June. While UK growth accelerated in Q1, the labor market weakened further. Yet, wage growth pressures remain prevalent, posing a challenge to the BoE's timing of interest rate cuts.Better-than-expected Q1 growth for the Euro Area prompted us to revise upwards our 2024 estimates, particularly for Spain and, to a lesser extent, Germany.