Eurozone growth stable in Q4 but Italy slips into recession

Economic growth in the eurozone was stable in the fourth quarter, according to preliminary data released by Eurostat, but Italy fell into recession.

Seasonally-adjusted gross domestic product rose by 0.2% on the quarter in the fourth quarter of 2018, unchanged from the previous quarter and in line with expectations.

Italy slipped into recession, with GDP there down 0.2% quarter-on-quarter following a 0.1% drop in the third quarter. It was a brighter picture for France and Spain, however, with growth rates of 0.3% and 0.7% quarter-on-quarter, slightly ahead of expectations.

On the year, GDP was up 1.2% in the eurozone, compared to a 1.6% increase in the final quarter of 2017. For the EU28 group of nations, GDP was up 0.3% on the quarter and 1.8% on the year.

Eurostat said annual growth for 2018 was 1.8% for the euro area, down from 2.5% growth in 2017.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "A poor GDP headline, but bang in line with consensus, indicating that markets have been prepared for the fact that eurozone growth remained weak in Q4, for a while.

"Overall, these data don’t look pretty, but have been well telegraphed by the hard data and the financial market horror show in Q4. Indeed, it seems to us that markets will be inclined to look at these headline as good news. They indicate that things probably won’t get much worse in the near term - this is a bold assumption given poor January survey data - and that the ECB will keep rates low for a long time."

Capital Economics said Q4’s GDP growth rate of 0.2% will do nothing to reassure policymakers about the outlook for this year.

"We think growth will be only around 1.0% in 2019, and even this would require a slight pick-up from Q4. So the European Central Bank will have no choice but to cut its GDP growth forecasts soon."

Meanwhile, the unemployment rate for the euro bloc was unchanged in December 2018 compared with the previous month, at 7.9%, in line with expectations. This was a drop compared to the 8.6% rate seen in December 2017, however, and remains the lowest rate recorded in the eurozone since October 2008.

In the EU28, the unemployment rate was also stable compared to November at 6.6%, but down from 7.2% in December 2017.

"We reckon that unemployment will continue to fall this year, but at a much slower pace than in 2018, due to the slowdown in GDP growth," said Vistesen. "Employment growth also will slow significantly."