08062016 Euro Forecast

The euro weakened against the UK pound on Tuesday as mixed EU GDP data for Q1 of 2016 had analysts warning of further euro-zone GDP volatility later in the year. As of 07:30 GMT this morning, one UK pound exchanged 1.2807 euros, or 0.04% higher (GBP/EUR).

Eurostat, the European statistics authority released its latest figures showing a 0.5% drop in GDP for Greece in Q1 of 2016. At the same period, the euro-zone as a whole showed a 0.6% rise in GDP, while the European Union documented a 0.5% increase in GDP.

Compared to Q1 of 2015, the seasonally adjusted GDP in Greece dropped by 1.9%, while at the same time it grew by 1.7% in the euro-zone and 1.8% in the EU. Greece was the only one of the euro-zone’s 19 countries where the economy contracted.

The highest GDP growth rates were documented in Romania (1.6%) and Cyprus (0.9%), followed by Spain, Lithuania, Austria and Slovakia (0.8%). Conversely, the highest drops were documented in Hungary (0.8%), Greece (0.5%) and Poland (0.1%).

Eurostat pointed out that an increase in investment was among the biggest factors in the boost to GDP across the euro-zone along with a rise in exports of 0.4%, though the euro-zone’s healthy trade balance was slightly eroded by a rise in imports of 0.7%. It added that the US economy expanded by just 0.2% in the first quarter.

Brexit Uncertainties Problem for Euro Growth

“Global economic uncertainties and problems are still a handicap for euro-zone growth. It is also notable that first quarter growth was clearly helped in some countries – notably Germany, by the mild weather helping construction activity.” said Howard Archer, who is a chief economist at IHS Global Insight.

Archer warned that uncertainty surrounding global growth could slow regardless of the upcoming UK referendum vote on EU membership, adding “It is probable that euro-zone GDP growth will soften in the second quarter. Global economic uncertainties and problems are still a handicap for euro-zone growth not only through limiting exports but also through limiting the upside on business and consumer confidence.”

In May, the European commission forecast euro-zone growth of 1.6% and EU growth of 1.8% in 2016. If the current momentum is maintain, analysts said these figures would need to be revised upwards, though most have warned that this largely depends on the outcome of the British EU Referendum on June 23rd.