Euro area’s economic growth momentum eases in Q4 2018

Euro area’s advance estimate fourth quarter GDP growth affirmed the ease in momentum was more persistent than previously thought. Growth came in moderately positive at 0.2 percent quarterly, matching the third quarter outturn which was supposed to have been impacted by temporary factors such as a disruption to German car production. Therefore, the hoped-for rebound in the fourth quarter growth embodied in the central bank’s December expectations failed to materialise.

There is no expenditure breakdown of the fourth quarter figures at this stage. From the monthly data, it is highly possible that the industrial sector contracted, reflecting to a considerable degree the effect of increased global trade tensions, while services activity is likely to have held up better, noted Lloyds Bank in a research report. The household sector continues to be supported by employment gains and signs of stronger wage growth.

The German full-year estimate release indicated to a modest rise. Italy saw a contraction of 0.2 percent quarter-on-quarter, after the 0.1 percent decline in the third quarter, and is therefore in technical – albeit shallow – recession. It might return to moderate growth in 2019. The comparative bright spots were France and Spain. The fourth quarter GDP growth was 0.3 percent quarter-on-quarter, unchanged from the third quarter, implying the negative effect of the gilets jaunes protests might have been smaller than anticipated. Spanish fourth quarter growth was strong at 0.7 percent also beating expectations.

For the whole of 2018, euro area growth came in at 1.8 percent, a slowdown from 2.5 percent in 2017 and the softest since 2014. Business sentiment indicators imply that activity in early 2019 continues to be subdued.

“The ECB’s projection for 1.7 percent growth in 2019 now looks too optimistic and is likely to be revised lower, along with inflation forecasts, for the next ECB meeting in March. The current consensus forecast is 1.5 percent and the risk is that it is also too high”, added Lloyds Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 42.1346, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -59.6592 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex