Growth sinks to near seven-year low in Q4
The Eurozone economy slowed sharply in the final quarter of last year, after growth picked up in the third quarter. According to a preliminary estimate released by Eurostat, GDP increased a seasonally-adjusted 0.1% in Q4 from the previous quarter, following Q3’s 0.3% increase. The reading represents the weakest expansion since Q4 2013 and undershot market expectations of a 0.2% increase. Compared with the same quarter of the previous year, seasonally-adjusted GDP expanded 1.0% in Q4, below Q3’s 1.2% increase and marking the slowest growth rate since Q4 2013.
Although no details behind the figure are yet available, prolonged weakness in the industrial sector amid global trade tensions, weak demand from key trading partners, and political uncertainty likely hit growth. Additional data showed that Italy’s unexpectedly contracted in Q4, while France’s economy also surprisingly shrunk due to widespread social protests. In contrast, the Spanish economy gained steam; however, a sharp contraction in capital spending and muted private consumption suggest the pick-up will turn out to be temporary.
Looking ahead, the economy should gradually gain some strength this year. The manufacturing sector is expected to recover, while private spending will remain solid, benefiting from modest inflation, a relatively low unemployment level and favorable financing conditions. That said, the pace of expansion is expected to be sluggish nonetheless.
As highlighted by Bert Colijn, Eurozone senior economist at ING:
“With a bottoming out of manufacturing, modest fiscal improvements and some reversal of the inventory drawdowns, the base case is that eurozone GDP growth is set for a subdued recovery over the course of the year.”
More comprehensive results for the fourth quarter are scheduled to be released on 14 February, 10 March and 20 April.