Complete data confirms lower growth in Q3
The third estimate of GDP released by Eurostat confirmed that activity waned in the third quarter. GDP increased a seasonally-adjusted 0.2% in Q3 over the previous quarter, the worst result since Q1 2013. The reading was below both Q1 and Q2’s 0.4% expansions and a sharp deterioration from the stellar 0.7% pace seen throughout most of 2017. The result matched the first and second preliminary estimates.
The deterioration was driven by weaker dynamics in both the domestic and external economies. Private consumption growth waned from 0.2% in Q2 to 0.1% in Q3 as rising inflation took a bite out of disposable income and economic sentiment fell. Similarly, government spending also halved, growing 0.2% in Q3 (Q2: +0.4% quarter-on-quarter). Lower sentiment amid concerns about global trade and political woes also weighed on investment in the quarter, and fixed investment growth fell from Q2’s solid 1.5% to 0.2% in Q3. Meanwhile, inventories posted a larger positive contribution in Q3.
The external sector dragged on growth in the third quarter, after posting a slight positive contribution in the second quarter. Exports contracted 0.1% over the previous quarter, contrasting Q2’s 2.0% growth. Reduced global trade and weak industrial activity due to disruptions to the automobile industry from new emissions tests likely held back overseas sales. Import growth also deteriorated, falling from 1.1% in Q2 to 0.5% in Q3.
On an annual basis, GDP growth in the Euro area fell to 1.6% in Q3 from Q2’s 2.2%.
The Eurozone economy has clearly entered a slower growth trajectory after the buoyant recovery in 2017. A tough external environment due to global trade tensions and volatile financial markets should provide less support than in years past for the economy, while political troubles over Brexit, Italy’s populist government and Eurozone political fragmentation plague sentiment. That said, an improving labor market and still-accommodative monetary policy should continue to power the recovery onwards.