Saturday 24 February 2018

Euro zone fourth-quarter GDP growth muted

European Commissioner for Economic and Financial Affairs Pierre Moscovici REUTERS/Yves Herman
European Commissioner for Economic and Financial Affairs Pierre Moscovici REUTERS/Yves Herman

A December fall in euro zone industrial output held back economic growth in the bloc to the same pace in the last quarter of 2015 as in the third, data showed, adding to arguments for further monetary easing.

The European Union's statistics office Eurostat said gross domestic product in the 19 countries sharing the euro rose 0.3 percent quarter-on-quarter in the last three months of last year, the same as in the July-September period and as expected by economists polled by Reuters.

Year-on-year, the euro zone economy expanded 1.5 percent, also as forecast by economists. In the first two quarters of 2015, the quarterly growth rates were 0.5 percent and 0.4 percent respectively.

"Fourth quarter GDP (gross domestic product) growth confirms that while the euro zone recovery progressed, it remained stuck in second gear," said Teunis Brosens, economist at ING Bank.

"While certainly not all is great in the euro zone, the state of the economy does not warrant the jittery markets we are witnessing this week," he said.

No detailed breakdown was available with Eurostat's first estimate, but separate data showed euro zone industrial output fell 1 percent month-on-month in December for a 1.3 percent year-on-year fall.

Economists polled by Reuters had expected a 0.3 percent monthly rise and a 0.8 percent annual increase in production.

"While this is partly an energy story caused by the much warmer than usual winter weather, there was weakness in other industries as well, with the notable exception of durable consumer goods," said ING's Brosens.

"Weak industrial production shows that the euro zone is not immune to weakness in emerging markets, let alone to a wavering U.S. economy. Then again, new order intake does not look all that bad: new orders, while volatile, are still trending upwards, both from within and outside the euro zone," he said.

Economists said such GDP growth rates would still not be enough to generate enough inflationary pressure to take price growth up to the European Central Bank's target of below, but close to 2 percent annually from 0.4 percent in January.

"We continue to think that further monetary easing is required, with further policy rate cuts on the cards from March onwards," said Nick Kounis, economist at ABN Amro said.

"However, more fiscal stimulus – in the form of public investment – in countries that have room for maneuver, and structural reform more widely – is also needed to support monetary policy," he said.

Howard Archer, an economist at IHS Global Insight, predicted the ECB would cut its deposit rate by a further 10 basis points to -0.40 percent at its March 10 meeting and that it could also step up its monthly purchases of assets by 20 billion to 30 billion euros from 60 billion now.

A Reuters poll shows an even chance the ECB will increase the size of its 60 billion euro ($68 billion) a month bond-buying program next month, while another deposit rate cut is almost certain


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