Growth surpasses expectations although remains anemic
A second preliminary estimate reaffirmed that the Eurozone economy remained soft in the third quarter of 2019, again weighed on by a weak manufacturing sector and uncertainty surrounding global trade. According to Eurostat, GDP increased a seasonally-adjusted 0.2% in Q3 from the previous quarter, matching both Q2’s reading and the first flash estimate—which had surprised market expectations on the upside. Compared with the same quarter of the previous year, seasonally-adjusted GDP expanded 1.2% in Q3, also matching Q2’s increase.
The result shows that the Eurozone economy remains stuck in a low gear, likely weighed on by a weak industrial sector amid an unsupportive global trade environment. Outstanding a full breakdown by components, monthly data suggests weakness in the industrial sector likely filtered into the services sector in the quarter. That said, the industrial sector could have turned a corner: Industrial production recorded two consecutive months of sequential, albeit subdued, expansion in August-September; meanwhile, confidence in the services sector declined throughout Q3, and the labor market started to flag, with employment barely rising in the quarter. The soft GDP print, combined with low inflation, highlights the ECB’s ultraloose monetary policy stance is struggling to boost growth in the bloc.
Additional data released by national statistical institutes across the Eurozone was consistent with the picture of stable but sluggish economic growth. Surpassing analysts’ expectations, the economies of Germany and Italy expanded a meagre 0.1% quarter-on-quarter and Germany thus narrowly dodged a technical recession. Meanwhile, France and Spain kept pace in the quarter, growing 0.3% and 0.4% respectively. Although Spain’s growth rate is well below its post-crisis highs, the Iberian economy continues to outperform most of its peers nonetheless.
Looking ahead, Peter Vanden Houte, chief economist for Belgium and the Eurozone at ING, noted:
“With 0.2% growth quarter-on-quarter, third quarter eurozone GDP growth came in better than expected. However, the economy continues to decelerate and it looks as if the trough in the current slowdown might still be a few months away. With a new president at the helm at the ECB, monetary policy is unlikely to change over the forecasting period”.
Meanwhile, Marco Valli, chief European economist at UniCredit, highlighted:
“Going forward, the outlook for fixed investment and its impact on the consumers will be key factors in the transmission of external weakness to the eurozone economy. So far, investment in the euro area has remained resilient despite a worsening of firms’ profitability, with the financing based progressively less on funds generated internally by firms, and more on external sources of funding. The latter has mainly reflected exceptionally loose financial conditions in the wake of ECB policies. However, unless firms’ profitability starts turning around soon, investment growth is likely to lose momentum in the coming quarters, which would then spill over more clearly to the labor market”.
More comprehensive results for the third quarter including a breakdown by components are scheduled to be released on 20 January.