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EMU CommentGDP growth disappoints; slowest in more than four years

  1. GDP growth halved in Q3
  2. Italian growth came to a standstill
  3. ECB already expected weaker growth
GDP growth halved in Q3
Today’s flash real GDP for the eurozone disappointed when quarterly growth halved in the third quarter to a moderate 0.2 percent from 0.4 percent in the second quarter. This result was even lower than our below-consensus forecast of 0.3 percent. Growth is now the slowest in more than four years, as seen by a slowdown in sentiment barometers as well as soft and hard data. As a result, we will revise down our GDP estimate for this year and probably also next (although marginally). The revision is due in our new macro forecast set to be released next week.
Italian growth came to a standstill
The flash GDP figures came without details, but we expect that both private consumption and fixed investments slowed, as suggested by soft numbers on retail sales and industrial production. This is probably partly due to some temporary effects such as warm weather and the new emission test requirements in the auto industry. We expect net exports to still be somewhat weak, as in the second quarter, while we do see some scope for a positive contribution from an inventory buildup. We also had some National GDP data. While Belgian growth was fairly stable, French GDP growth increased less than expected and Italian growth came to a standstill for the first time in almost four years. The growth here could have been sapped by weaker confidence due to the government and budget jitters. Thus, it suggests that the fairly optimistic growth forecast behind the Italian budget proposal is probably out of reach.
ECB already expected weaker growth
Late this summer we had hoped to see growth improving in the second half of 2018 and while that now seems unlikely, we do still expect GDP growth to improve in the final quarter of 2018 and into 2019. So far, that expectation has not been overly supported by sentiment barometers (especially PMI) and today’s ESI barometer also fell a notch more than expected to a 17-month low in October suggesting, so far, that growth will fail to improve much in the fourth quarter. However, we continue to expect an improvement as some temporary effects subside and despite the ESI barometers having decreased continuously this year the level is still fairly robust (see graph). As for the ECB, Draghi already acknowledged weaker growth in third quarter at the recently held policy meeting and, on the other hand, German flash CPI data for October released so far this morning suggests that we are in for another surprise on the upside.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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