Euro area: economic growth shows signs of flagging

The momentum of economic growth in the euro area has recently slackened notably. Admittedly, at +0.4 per cent quarter on quarter overall growth remained solid in the first three months of this year. But it was clearly flatter than the +0.7 per cent recorded in the final quarter of 2017.

However, this slower pace did not come as a surprise. Several important leading indicators, such as the DZ BANK Euro-Indicator, IHS Markit’s purchasing managers’ indices or the EU Commission’s economic sentiment  had already been revised down appreciably. But other hard indicators, such as for example industrial output, exports and retail sales also staged anything but a growth fireworks display in the first two months of this year.

Our expectation of a significant slowdown in economic growth in the euro area as a whole was already confirmed last week by initial signs such as the notable downturn in the euro area’s second-largest economy – France. Economic growth here even slowed by more than half: from +0.7 to +0.3 per cent, with investment and the net export of goods and services far weaker than in the previous quarter. We also expect to see a similar picture for the euro area. However, the initial estimate does not yet provide any details on the individual components of gross domestic product.

Ultimately, the uncertainty caused by the exacerbation of the trade dispute and the further escalation of the geopolitical risks is also likely to be behind the more sluggish pace of growth. These factors have had a notable negative effect on the global economic climate. Overall, the ongoing discussions and disputes about trade barriers are likely to weigh heavily on sentiment regarding the real economy in the next few months.

Basically, a  decline in sentiment at the companies and private households is likely to lead to restraint as regards investment and to somewhat less dynamic world trade. This year we expect economic growth in the euro area to slow to +2.0 per cent. In 2017 the economy grew by +2.4 per cent.

 

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