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Eurozone growth revised in sign of recovery fragility

Feb 14 2017 13:05
Alessandro Speciale

Frankfurt - The eurozone economy expanded less than initially reported in the fourth quarter as growth in three of its largest economies fell short of expectations and Greek output unexpectedly shrank.

Gross domestic product rose 0.4%in the three months through December, the European Union’s statistics office in Luxembourg said on Tuesday. That is below a January 31 estimate and follows an increase of 0.4 percent in the previous quarter.

The data highlight the fragility of the 19-nation economy’s recovery. After the currency bloc weathered global uncertainty last year, the outlook for 2017 is clouded by higher oil prices, a surge in populism ahead of elections in some of the region’s largest economies, and trade risks related to Brexit and US policies.

“Higher inflation is likely to weigh on disposable incomes and private consumption,” said Matthias Thiel, an economist at BNP Paribas in London. “We don’t have a lot of details, but the comments from the German statistics office suggest that the miss was due to strong imports. That, in turn, implies that underlying growth remained quite strong.”

The euro was little changed after the report and traded at $1.0617 at 11:38.

Fourth-quarter performances fell short of analysts’ forecasts in Germany, Italy and the Netherlands, three of the region’s five-largest economies. Greek output contracted 0.4%, compared with estimates for a 0.4% increase. Eurostat confirmed the pace of growth in Spain and France in the final three months of 2016.

Andreas Rees, an economist at Unicredit in Frankfurt, predicts that the downward revision of eurozone growth is mainly due to Germany’s performance, which was damped by the timing of Christmas holidays.

“It is a technicality which will be corrected,” he said. “Fundamentals look solid. An acceleration in global trade is in the pipeline.”

Downside risks

That’s unless President Donald Trump follows up on threats to tear up free-trade treaties. At home, accelerating inflation - the rate rose to 1.8% in January - may hit consumer spending. Business confidence could also be hit by a resurgence of Greece’s debt crisis and political instability in the course of a year that will see Germany, France, the Netherlands and possibly Italy go to the polls.

European Central Bank officials argue that monetary stimulus remains crucial in sustaining the recovery. President Mario Draghi has pledged to continue government-bond purchases until at least the end of 2017, and Executive Board member Yves Mersch said the central bank must be a “guarantor of stability” in uncertain times.

In the fourth quarter, “domestic demand continued to support the recovery and this is positive,” said Fabio Fois, an economist at Barclays  in Milan. “Going forward, as political uncertainty declines, it should continue to drive growth in 2017 as well.”

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ecb  |  eu  |  eurozone  |  economy  |  gdp

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