Euro area: Growth noise and inflation outlook – Societe Generale

FXStreet Insights Team FXStreet

Societe Generale strategists argue that the negative 1Q Gross Domestic Product (GDP) print mainly reflects Irish volatility rather than broad weakness, with ex‑Ireland growth at 0.3% qoq and stronger PMI and French industrial data. They see risks of French technical recession receding and project headline and core inflation peaking around 3.8% and 2.8% year-on-year in early 2027.

Irish distortions and inflation peaks

"The revision to negative territory for euro area GDP growth in 1Q is a bit embarrassing less than a week before an ECB hike."

"The main surprise was a very sharp downward revision of Irish GDP growth in 1Q to -12.1% qoq. Euro area GDP growth is now in negative territory in 1Q (-0.2% qoq)."

"And while most of the actual weakness in sentiment is in Germany and France, French hard data also surprised to the positive side."

"The risk of a second consecutive fall in GDP in 2Q has therefore receded in France."

"For its part, headline inflation came out in line with our expectations at 3.2% yoy in May. Underlying inflation was also in line with our expectations at 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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