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EMU CommentGrowth kept the subdued pace in Q4

  1. Growth stable, despite sentiment collapse
  2. Italy in recession
  3. Moderate growth ahead; labour market to gradually turn around
Growth stable, despite sentiment collapse
The eurozone preliminary real GDP for Q4 was stable, at 0.2 percent (q-o-q), as expected. Hence, annual growth ended at 1.8 percent (seasonally adjusted) in 2019, stressing the fact that growth peaked in 2017 (at 2.4 percent) and that a slowdown is now taking hold. This said, we expect a less pronounced slowdown this year: see our new global macro forecast, “Global economy on shaky ground”. Several signs so far in 2019 suggest that GDP growth should not be expected to improve much in the beginning of 2019; sentiment barometers especially have continued to decrease, pointing to only modest growth (first graph). As a consequence of that and slow growth at the end of 2018, we revised down our GDP forecast to 1.3 percent this year and expect the ECB to follow suit in March, as already flagged by the recent change to “downside” risks to its outlook.
Italy in recession
The GDP data came without details, but national data indicates that growth was restrained by slowing fixed investment and subdued private consumption; exports contributed to higher growth in some places. The national GDP accounts confirmed stable Q4 growth, with France and Belgium unchanged at 0.3 percent (q-o-q), while German growth seemed to increase from stagnation levels and Spanish growth accelerated modestly to a healthy 0.7 percent. Italian growth, on the other hand, confirmed a shallow technical recession, as many had expected, at -0.2 percent in Q4 after -0.1% in Q3.
Moderate growth ahead; labour market gradually turning around
Downside risks are rising these days, but we are, however, not entirely convinced that the eurozone economy has run completely out of steam. Despite recent headwinds, the labour market is still advancing, albeit at a slower pace. Wage growth is rising and continued improvements in the housing markets provide an anchor of confidence for households. With headline inflation seen decreasing at a more rapid pace into 2019, that will support real incomes among households. Hence, we expect stable moderate growth through to mid-2019,' supported by the outlook for net exports' contribution not deteriorating further this year as the effect of a stronger EUR subsides. Of course, there is a risk that exports could turn out to be weaker if global demand deteriorates at a more rapid pace than anticipated this year. With growth slowing toward potential and capacity constraints on the labour market high, we expect the improvement in the labour market to slow during 2019 and see unemployment starting to rise in the second half of 2019. That has also been suggested by recent labour market indicators (second graph). Today’s unemployment rate figure was stable, at 7.9 percent, as expected.

Source: Macrobond


Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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