Euro Area: Economy flatlines in the fourth quarter

Euro Area GDP Q4 2023

Euro Area: Economy flatlines in the fourth quarter

GDP remained unchanged on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, above the 0.1% contraction tallied in the third quarter. On an annual basis, economic growth was steady at 0.1% in Q4, from the previous quarter’s 0.1% expansion. Q4’s reading marked the worst reading since Q1 2021.

Household spending growth eased to 0.1% seasonally-adjusted quarter-on-quarter in Q4 compared to a 0.3% expansion in Q3, due to downbeat sentiment and despite robust wage growth and falling inflation. Government spending, meanwhile, was stable at a 0.6% expansion in Q4 (Q3: +0.6% s.a. qoq). Meanwhile, fixed investment increased 1.0% in Q4, after flatlining in the prior quarter, underpinned by non-construction spending.

On the external front, exports of goods and services were unchanged on a seasonally adjusted quarterly basis in the fourth quarter, which was above the third quarter’s 1.2% contraction. In addition, imports of goods and services bounced back, growing 0.6% in Q4 (Q3: -1.4% s.a. qoq), marking the best performance in a year.

Momentum should remain subdued in the first quarter of this year, restrained by depleted savings and still-tight financing conditions. In 2024 as a whole, GDP is likely to expand at no more than a paltry pace. The disbursement of EU funds should support activity, however. Higher-than-expected debt-servicing costs for highly indebted Mediterranean governments due to increased financial and geopolitical instability pose a downside risk to the outlook.

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