Euro area GDP likely to rise 2.3 pct in 2017, 2.0 pct next year: Barclays Bank

Euro area gross domestic product (GDP) is expected to rise 2.3 percent this year and 2.0 percent by next year. The area’s GDP rose by 0.6 percent q/q in Q3. The latest EC quarterly survey suggests tensions appearing on production capacity, notably coming from labour, Barclays Research reported.

Euro area flash Q3 2017 GDP grew by 0.6 percent q/q, slightly decelerating from the upwardly revised 0.7 percent q/q in Q2 17 GDP. At the national level, just France, Spain, Belgium and Austria GDP have been released, posting solid prints of 0.5 percent q/q, 0.8 percent q/q, 0.3 percent q/q and 0.6 percent q/q, respectively.

Crucially, euro area GDP growth continues to print in line with business surveys. Latest prints suggest that this positive momentum should be maintained in the quarters ahead. The October euro area economic sentiment indicator (from the European Commission survey) posted the strongest print since end 2000, supported by buoyant sentiment in all sectors.

The industrial confidence indicator reached a record high since the creation of the series (1985), underpinned by dynamic volume of order books. The fact that it was only revised down by 0.1 points from the “flash” estimate, the final October PMIs at 58.5 (+0.4points from September) also concurs with this buoyant picture.

"In sum, we expect euro area economic growth to remain broadly unchanged at 0.5 percent q/q in Q4 2017 and in 2018. Economic activity should accelerate to 2.3 percent y/y in 2017 – 0.1pp upwardly revised after this week’s release - from 1.8 percent in 2016 and grow by 2.0 percent in 2018, mainly driven by domestic demand. We continue to consider risks to our growth outlook as broadly balanced, with notably upside risks stemming from Italy, and downside risks mainly from Spain," the report said.

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