Fears of a eurozone slowdown have mounted after the economy stagnated at the end of 2018, growing just 0.2 per cent between the third and fourth quarters last year.
The flash estimate of growth from Eurostat, the European Commission’s statistics bureau, is in line with the disappointing figure for the previous quarter, which put growth at its lowest level in more than four years, and tallies with economists’ forecasts. Italy, the third-largest economy in the eurozone, fell into a technical recession after its second consecutive quarter of contraction.
The evidence of eurozone weakness comes as policy officials around the world are becoming increasingly concerned about the outlook. The US Federal Reserve last night dramatically reversed course and said it would put further rate rises on hold over signs that global growth was weakening.
The European Central Bank last week downgraded its assessment for risks to growth just six weeks after dropping the most important part of its crisis-era stimulus — the expansion of its €2.6tn quantitative easing programme.
“The underlying pace of growth is likely to slow further,” said Christoph Weil, economist at Commerzbank. “A prerequisite for the stabilisation of the economy that we expect to see in the spring is a recovery in demand from China, an easing of the trade conflict between the US and China, and no hard Brexit.”
Initial indications are that momentum has waned further since the start of the year. The €-coin indicator, a bellwether for the direction of GDP, on Thursday fell to a two-and-a-half year low of 0.31 in January, down from 0.42 in December. Purchasing managers’ indices have also dipped to multiyear lows.
Both polls signal that political uncertainty is denting business confidence and that the eurozone’s manufacturers are particularly exposed to weak external demand.
Mario Draghi, European Central Bank president, has signalled that the bank will act if evidence of a prolonged slowdown in momentum continued to mount.
But Mr Draghi has also indicated the barrier to an about-turn on QE is high, saying earlier this week that it was unlikely there would be further QE measures in 2019.
Any additional action by the ECB is likely to involve tweaks to its message, such as implying further delays in raising rates and in halting the pace of reinvestments of QE bonds as they mature, say economists. Those reinvestments are set to keep the size of the programme at its current level of €2.6tn for years to come.
Italy has seen investment decline on the back of concerns over the political environment and poor longer-term growth prospects. French growth figures were better than expected in the fourth quarter, But Germany, the region’s largest economy, is driven by a €1.6tn export machine and is exposed to weak global growth.
The German government has already slashed its projections for growth from 1.8 per cent to 1 per cent for this year and some ministers are calling for stimulus to support investment..
Economists had initially hoped that the weaknesses seen in the previous quarter were down to one-off factors, such as delays in German auto manufacturers meeting new EU emissions standards and low water levels on the Rhine hampering deliveries. But data published in recent months were almost all disappointing, and hopes of a bounceback had dimmed.
