Sunday 25 August 2019

Slower Eurozone growth sows seeds for extra ECB stimulus

ECB President Mario Draghi. Photo: Reuters
ECB President Mario Draghi. Photo: Reuters

Colm Kelpie

The Eurozone economy grew at a slower pace than expected over the summer months and September, in yet further evidence of the sluggish nature of the bloc's recovery.

The 19-member zone eked out growth of 0.3pc quarter on quarter between July and September, lower than the 0.4pc estimates from economists, as Italy, Portugal and the Netherlands underperformed. Indeed, Portugal's growth has stalled, while Greece's economy shrank.

On an annual basis, the bloc's economy grew by 1.6pc compared with the same period last year.

The Central Statistics Office has not yet released data for the third quarter yet, but in the second quarter the Irish economy grew by 1.9pc quarter-on-quarter and 7.3pc on an annual basis, the fastest in Europe on both accounts. Data for the third quarter is expected around mid-December.

The latest data from Eurostat marks a slowdown from earlier in the year, when 0.4pc was recorded in the second quarter and 0.5pc in the first three months of the year.

Danae Kyriakopoulou, an economist with the London-based Centre for Economics and Business Research, said the "anaemic" growth sets the scene for more stimulus from the European Central Bank.

"Overall, the numbers are far from a cause for cheer; 2015 has been boosted by the trifecta of low oil prices, the European Central Bank's quantitative easing policy, and a weak euro. But looking ahead, the risk of a global slowdown has intensified," Ms Kyriakopoulou said.

"After the US subprime crisis of 2007-2009 and the Eurozone crisis of 2010 onwards, it is now emerging markets' turn to set off the global economic alarm bells."

She said expectations are that the ECB will announce a further round of quantitative easing in the first three months of next year.

"Mario Draghi himself seems to be in favour of such a move as hinted at his most recent speech on November 11," Ms Kyriakopoulou added.

"Building consensus within the ECB's Governing Council to proceed is set to be a tricky task, however. Still, ECB hawks, much like Fed doves, are increasingly starting to look like a species under the threat of extinction."

Reuters reported this week that the ECB was considering regional and municipal bonds as a potential stimulus option.

Aggregated Eurozone growth was lower than expected mainly because growth in Italy, the Netherlands, Portugal and Finland all underperformed market expectations.

The Eurozone's two biggest economies, Germany and France, both grew in line with expectations at 0.3pc on a quarterly basis.

But the third biggest, Italy, with 0.2pc quarterly growth, fell short of expectations of a 0.3pc expansion and the Netherlands grew only 0.1pc against expectations of 0.3pc.

Portugal did not grow at all in the third quarter and Finland's economic contraction was bigger than expected.

Meanwhile, separate data from the CSO showed that goods exports fell by 4pc in September, compared with August. The unadjusted value of Ireland's goods exports, however, was 5pc higher in the month, compared with September last year at €8.67bn. With a monthly fall in imports by 3pc, the trade surplus narrowed by 7pc to €3.34bn, the second lowest so far this year.

Alan McQuaid of Merrion Stockbrokers said the trade balance should increase this year for the first time since 2010.

"The overall surplus in 2015 is in our view now likely to be in and around €4bn," he said.

Irish Independent

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