Inventory correction has further to run

The breakdown of Q1’s euro-zone GDP figures brought little comfort. The record 2.5% quarterly drop was driven mainly by falls in investment and inventories, while a sharp drop in exports was largely offset by a fall in imports. It is broadly encouraging that firms have begun the necessary correction in their inventories, but survey measures suggest that this process still has further to run. Broader measures of business sentiment have improved, but point to a slower rate of contraction rather than any actual increase in overall activity.