Consumption in Eurozone

Eurozone - Consumption

Third estimate confirms growth sank to near seven-year low in Q4 2019

A third estimate confirmed 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, according to Eurostat. Compared with the same quarter of the previous year, seasonally-adjusted GDP expanded a revised 1.0% in Q4 (previously reported: +0.9% year-on-year), below Q3’s 1.3% increase and marking the slowest growth rate since Q4 2013. The fourth quarter’s result brings full-year growth for 2019 to 1.2%, down from 2018’s 1.9% expansion and marking the softest reading since 2013.

Household spending growth in Q4 decelerated abruptly to 0.1% over the previous quarter, from Q3’s 0.5%, amid plunging consumer confidence, political uncertainty and gloomy economic prospects. Moreover, government consumption growth halved (Q3: +0.3 qoq s.a.; Q3: +0.6% qoq s.a.) and destocking continued to subtract 0.1 percentage points from growth, as companies opted to lighten their warehouses amid feeble demand prospects. On the other hand, fixed investment rebounded (Q4: +4.2% quarter-on-quarter s.a.; Q3: -3.8% qoq s.a.), propelled by soaring fixed investment growth in Ireland.

The external sector dragged heavily on growth, after contributing to growth in the previous quarter. Exports lost some pace in Q4, amid global trade policy uncertainties and a weak industrial sector (Q4: +0.4% qoq s.a.; Q3: +0.6% qoq s.a.). Meanwhile, imports bounced back robustly (Q4: +2.2% qoq s.a.; Q3: -1.3% qoq s.a.), again due to surging purchases from abroad in Ireland.

In terms of specific countries, Italy contracted sizably in the fourth quarter (Q4: -0.3% qoq s.a.) and France’s economy also sank 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 be temporary.

Looking ahead, the Eurozone economy is expected to grow only modestly this year. Trade uncertainty and a weak global backdrop will restrain exports and hit investment and industrial activity. Moreover, cooling employment growth and higher savings are set to constrain household spending. Political uncertainty, the impact of coronavirus, U.S.-EU trade tensions and Brexit pose the main downside risks.

FocusEconomics Consensus Forecast panelists see the Eurozone economy expanding a soft 1.0% in 2020, which is unchanged from last month’s forecast, before edging up to 1.2% in 2021.