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Eurozone Growth Remains Lackluster As Italy Slides Into Recession

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Eurozone failed to rev up its growth momentum in the final quarter of 2018, and one of the big economies of the bloc - Italy, slid into recession, as a toxic mix of downside risks served to dampen activity across the 19-nation economy.

The plethora of risks faced by Eurozone, largely in the second half of 2018, included trade tensions, yellow vests protests in France, the Chinese economic slowdown, the troubles in the German automobile industry, and eventually, the threat posed by the lingering uncertainties surrounding Brexit.

While economists had brushed off the economic weakening that began showing in the third quarter as temporary, caused by one-off factors, the latest figures prove it is otherwise. The impact of such risks caused the growth rate, both quarterly and annual, to halve from the first quarter to the end of the year.

Gross domestic product grew 0.2 percent from the third quarter, when the economy expanded at the same pace. The growth rate, which is the weakest in four years, was in line with economists' expectations.

Compared to the same period a year ago, GDP rose 1.2 percent in the fourth quarter after a 1.6 percent increase in the previous three months. The annual growth figure also matched economists' prediction.

For the full year 2018, GDP growth was 1.8 percent, slower than the 2.4 percent logged in 2017. The annual average growth was the weakest since 2014, when the economy expanded 1.4 percent.

In December, the ECB Staff trimmed the growth projection for this year to 1.7 percent from 1.8 percent.

With the European Central Bank assessing that the risks to Eurozone growth outlook has moved to the downside, business conditions are set to remain sluggish over the coming months. The dovish remark has almost wiped out any hope of an interest rate hike this year.

"Given the weakness in surveys about Eurozone growth in January as well, it is likely that the 2019 growth forecast will see a substantial downgrade in March when the new staff projections are released," ING economist Bert Colijn said.

"With this, the almost philosophical debate in the governing council of where we are and where we are going may take a more pessimistic turn that will please the doves."

Among the big four, Italy emerged the sick one, falling into a technical recession in the fourth quarter.

The Italian GDP decreased 0.2 percent from the third quarter, when the economy contracted 0.1 percent. Economists had expected a 0.1 percent decline.

The country, which battles a host of economic troubles such as a banking crisis and high debt, became the only one from the Eurozone's big four to enter into recession at the end of 2018, dealing a setback to the new right-wing and anti-establishment coalition government.

Spain proved to be the strongest, logging 0.7 percent quarterly growth, which was better than the third quarter's 0.3 percent expansion. Growth was driven by strong exports and state spending.

Even France, which dealt with the "yellow-vests" anti-government protests in the fourth quarter, grew 0.3 percent, same as in the third quarter. The economy expanded on support from trade, while domestic demand slowed.

Germany likely avoided a technical recession in the fourth quarter, the economy ministry has said, as the economy apparently rebounded from the decline in the previous quarter with the dampening impact from the WLTP emission tests implementation in the automobile sector gradually coming to an end.

The Eurostat also reported that the euro area unemployment rate for December was 7.9 percent, unchanged from November and in line with economists' expectations.

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