Teunis Brosens, Research Analyst at ING, suggests that today’s details on Eurozone GDP in the fourth quarter, albeit long gone, show some encouraging signs about the Eurozone recovery.
Key Quotes
“In particular, investment was the main growth engine, jumping 1.3%QoQ and taking over the baton from consumption. We have long been waiting for a revival of investment, and it finally appears to be happening. Year-on-year investment growth even rose to 3.4%YoY, the highest growth rate since March 2011. This shows that amidst all the gloom and doom emanating from falling confidence indicators in the Eurozone, it is easy to forget that the hard data has so far not been all that bad.
Household consumption on the other hand decelerated to 0.2%QoQ (1.5%YoY). We think that at least some of the fourth quarter weakness is explained by the mild winter weather, causing lower energy consumption and even denting retail sales (fewer fluffy winter coats). Net exports, having been the main driver of growth between 2011 and 2013, has now become a drag on growth, subtracting 0.6% from the YoY GDP growth rate. The Eurozone is clearly not immune to the slowdown in emerging markets.
With further weakness in the external environment ahead, it is very encouraging to see domestic demand proving resilient – at least, in the fourth quarter. Survey indicators notwithstanding, the few hard data we have for 2016Q1 do not show a marked deceleration. That said, with confidence indicators pointing south, core inflation weakened to 0.7%YoY and a downward revision to ECB inflation forecasts on the cards, the ECB will on Thursday most likely judge it has sufficient reason to act, presenting a bittersweet cocktail of deposit rate cuts, forward guidance and policy extensions and expansions.”
