Euro area Q4 growth final estimate affirms earlier estimate of 0.6 pct growth, likely to moderate in Q1 2018

The final estimate of euro area’s fourth quarter GDP growth affirmed the earlier estimate of growth of 0.6 percent on a sequential basis, 0.1 percentage point weaker than the earlier two quarters. On a year-on-year basis, the economy grew 2.7 percent, the strongest since the first quarter of 2011. More interesting was the expenditure breakdown, which was published for the first time.

This showed that, in spite of the continued solid employment growth and positive sentiment, consumer spending was surprisingly weak, rising just 0.2 percent quarter-on-quarter, the most subdued rate since the first quarter of 2014. On the contrary, fixed investment rose strongly in the fourth quarter after declining in the prior quarter. It rose 0.9 percent on a sequential basis. And with export growth the strongest since the first quarter of 2015 and comfortably outpacing imports, net trade contributed 0.4 percentage point to growth, making the largest contribution to the growth of the second successive quarter.

“We expect to see a firmer showing for consumption to only partially offset a softer contribution from net trade in Q1 to leave GDP growth moderating to 0.5 percent Q/Q in Q1”, noted Daiwa Capital Markets Research in a report.

However, the effect of harsh winter weather contributes to an unusual degree of uncertainty to this estimate. Therefore, a gradual further moderation is expected in overall growth to 0.4 percent from third quarter onwards. The likelihood of continued tepid consumption in spite of solid fundamentals poses downside risks to this outlook, as does any weakening of external demand, especially from emerging market economies, which represented the most solid source of growth in euro area exports in 2017, added Daiwa Capital Markets Research.

At 21:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bullish at 105.177, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -89.0042. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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