Euro Area Domestic Demand (ann. var. %)

Euro Area Domestic Demand (ann. var. %)

The economy flatlines in Q4

Economic growth was flat from the previous quarter in seasonally adjusted quarter-on-quarter terms in Q4, below Q3’s 0.4% expansion and the preliminary reading of a 0.1% increase. Compared with Q4 2021, seasonally adjusted annual GDP increased 1.8% in Q4, following the 2.4% rise recorded in the previous quarter. The quarterly deceleration came on the back of soaring inflation and energy prices and a worsening global economic outlook.

On the domestic front, household spending contracted 0.4% in Q4, contrasting the 0.5% expansion recorded in Q3, as households suffered from the effects of soaring inflation. Meanwhile, fixed investment contracted 0.8% in Q4, swinging from Q3’s 0.9% increase amid a bleaker international backdrop and waning demand prospects. Lastly, public spending grew 0.2% (Q3: +0.0%).

On the external front, exports of goods and services flatlined in the fourth quarter, which was below the third quarter’s 0.9% increase. Meanwhile, imports of goods and services expanded 0.9% in Q4 (Q3: -2.0%).

Moving to the current quarter, available data gives room for hope that the economy could dodge a contraction. In January and February, inflation continued to decline, and economic sentiment improved. Moreover, the composite PMI moved further into expansionary terrain in February amid falling energy prices. That said, the lagged effects of cumulative interest rate hikes on borrowing activity seem to have started to bite.

In 2023 as a whole, GDP should expand timidly amid still-elevated inflation, higher interest rates and a less supportive global economy. That said, EU funds allocation—if timely—and lower energy prices should support activity. Increasing public debts pose risks.

Euro Area Domestic Demand (ann. var. %) Data

2017 2018 2019 2020 2021
Domestic Demand (ann. var. %) 2.4 1.8 2.5 -5.9 4.2

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