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This week we look at eurozone GDP and break out the economic growth results from Germany and France, and gauge how the euro economies are progressing through the recovery. We also have a brief review of the inflation data from the US, and wrap up with a review of 12 monetary policy decisions of various central banks from around the world over the past week.

1. EU GDP
The euro area (EA17) reported Q1 GDP growth of 0.8% q/q, up from 0.3% in Q4 2010, bringing annual GDP growth to 2.5%, up from 2.0% in Q4 2010. Meanwhile the EU27 also recorded quarterly GDP growth of 0.8%, up from 0.2% in Q4 2010, bringing annual growth to 2.5%, up from 2.2% in Q4 last year. The worst performing economies on a quarterly basis were Portugal (-0.7%), Cyprus (0%), Italy (0.2%) and Latvia (0.2%). While the best performing economies on a quarterly basis were Lithuania (3.5%), Estonia (2.1%), and Germany (1.5%), with 1% growth rates in Belgium, France, Austria, and Slovakia. Thus for now, growth is relatively strong in the euro region, in spite of the fiscal challenges on the fringe, but there are risks to the outlook.

2. German GDP
Germany reported Q1 GDP growth of 1.5% q/q, up from 0.4% in Q4 2010 (market consensus around 0.9%). On an annual basis the German economy expanded 4.8%, faster than the 3.8% recorded in Q4 last year (market consensus around 4.2%). Germany continues to prove its worth as a key growth engine in the EU, benefiting from a strong manufacturing and export base, as well as a sound financial system and strong government balances. Philipp Rosler, economics minister in Germany, said "Germany is the growth motor among the industrial nations - and not just in Europe".

3. France GDP
The French economy grew 1.0% in the first quarter of this year, faster than the 0.3% recorded in the previous quarter. On an annual basis GDP expanded 2.2%, up from 1.4% in Q4 2010. The French economy is slowly gathering pace, with the manufacturing and services sectors strong, yet much of the growth this quarter came from changes in inventories. Household spending and fixed capital formation also contributed positively, while net exports were a negative. French finance minister Christine Lagarde noted that Q2 GDP is likely to be weaker, but is still comfortable with a 2.0% growth target for 2011.

4. US Inflation
The US reported annual headline inflation of 3.2% in April, up from 2.7% in March as the CPI rose 0.4% m/m. Core inflation crept up to 1.3% in April from 1.2% the previous month, with core CPI up 0.2% m/m. Accelerating nflation around the world at the moment is larely a product of rising commodity prices - especially energy commodities. In the near term there may be some more moderation in commodities prices, but I don't see oil falling far and fast in the near term. What was a mild concern was the incidence of broader 'second round' inflation effects, with core inflation steadily rising. That said, while both headline and core inflation are rising, neither are accelerating at a historically excessive rate, core is still relatively low compared to the last 10 years.

5. Monetary Policy Review
The past week saw 12 monetary policy decisions. Those that increased interest rates were: Azerbaijan +25bps to 5.25% Poland +25bps to 4.25% Norway +25bps to 2.25% Peru +25bps to 4.25% and Chile +50bps to 5.00%. Meanwhile Ghana was the only country that eased policy, cutting rates 50bps to 13.00%. Those that held rates unchanged were: Indonesia 6.75% South Africa 5.50% Latvia 3.50% and South Korea 3.00%. Besides interest rate changes two economies lifted reserve requirements: Uruguay lifted its required reserve ratios 300bps to 15%, while China increase its RRR by 50 basis points to an average 21% for large banks.

Summary

A look at euro region GDP results showed the economic recovery is still strongly on track for the most part, but with due divergence and weakness at the periphery. While there remains downside risks to the outlook from economies like Portugal, Ireland and Greece, the outlook is still strong with the key economies like France, and especially Germany growing strongly. Elsewhere, the US saw an acceleration of inflation in April, but not yet at a worrying pace. On the monetary policy front the theme of emerging market tightening continued, and saw increasing involvement of developed economies in the monetary policy normalization process.

Sources:
1. EuroStat
2. EuroStat
3. EuroStat
4. Bureau of Labour Statistics
5. CentralBankNews.info
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Source: Top 5 Graphs of the Week: EU GDP, US CPI, Global Monetary Policy