Surveys point to a strong Q1

Survey data for February suggest that euro-zone GDP growth accelerated in Q1 following two healthy quarterly gains of 0.4% in the second half of last year. After February’s rise, the PMI pointed to an expansion of about 0.6%. That said, there was evidence in January’s retail sales data that higher inflation is starting to damage spending – real sales fell for the third consecutive month, leaving the annual growth rate at a relatively subdued 1.2%. We expect this trend to continue, prompting overall GDP growth to slow in Q2 and beyond. But the strong start to the year has led us to revise up our 2017 euro-zone GDP growth forecast from 1.0% to 1.3%.