Consumption in Eurozone

Eurozone - Consumption

Growth sinks to near seven-year low in Q4

A second estimate reaffirmed that the Eurozone economy slowed sharply in the final quarter of last year, after growth picked up in the third quarter. GDP increased a seasonally-adjusted 0.1% in Q4 from the previous quarter, following Q3’s 0.3% increase, which represents the weakest expansion since Q4 2013. Compared with the same quarter of the previous year, seasonally-adjusted GDP expanded a revised 0.9% in Q4 (previously reported: +1.0% year-on-year), below Q3’s 1.2% increase and marking the slowest growth rate since Q4 2013.

Prolonged weakness in the industrial sector amid global trade tensions, weak demand from key trading partners and political uncertainty all constrained the economy in the fourth quarter. Outstanding a full breakdown by components, monthly data suggests diving industrial output and depressed business confidence in the industrial sector likely hit investment activity. Moreover, despite a pick-up in employment growth, cooling retail sales and plunging consumer sentiment point to spillovers to the services sector 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 an economic cooling. Surprising analysts’ expectations on the downside, Italy contracted sizably in the fourth quarter (Q4: -0.3% quarter-on-quarter seasonally-adjusted) and France’s economy also unexpectedly shrunk due to shrinking inventories (Q4: -0.1% qoq s.a.). Meanwhile, Germany’s economy flatlined, after having dodged a technical recession in the previous quarter, weighed down by a struggling industrial sector. In contrast, Spain gained some pace in the quarter, growing 0.5%, although a sharp contraction in capital spending and muted private consumption suggest the pick-up will turn out to be temporary.

This year, the economy looks set to remain anemic. Foreign sales are poised to cool amid an unsupportive external environment, which will also weigh heavily on investment activity and restrain the industrial recovery. On top of that, the still-unquantifiable effects of coronavirus, political uncertainty in Italy, bloated public debts in Greece, Italy and Spain, and trade tensions with the U.S. all pose downside risks to the outlook.

More comprehensive results for the third quarter including a breakdown by components are scheduled to be released on 10 March.

FocusEconomics Consensus Forecast panelists estimate the Eurozone economy will expand 1.1% in 2020, which is unchanged from last month’s forecast. For 2021, panelists see the economy expanding 1.3%.