World trade deterioration hit the euro area hard in the fourth quarter

The Eurostat’s second release of Q4 euro area GDP confirmed the preliminary estimate of a decline of 0.6% q-o-q (-2.3% q-o-q annualised), consistent with a y-o-y figure of -0.9%. It is the fifth consecutive month of contraction.

The Eurostat’s second release of Q4 euro area GDP confirmed the preliminary estimate of a decline of 0.6% q-o-q (-2.3% q-o-q annualised), consistent with a y-o-y figure of -0.9%. It is the fifth consecutive month of contraction.

However, we are sticking with our scenario of a lesser contraction in Q1 2013 (-0.1 % q-o-q) than in Q4 2012 for the euro area, and respectively -0.5% (consensus: -0.1%) for 2013 and 0.9% (consensus: 0.9%) for 2014.

Widespread decline in GDP component
The breakdown of Q4 euro area GDP showed a fall in every component of expenditure. In particular, the main culprit in terms of negative contribution was exports (-0.9% q-o-q), followed by private consumption (-0.4% q-o-q) and investment (-1.1% q-o-q). Nevertheless, despite widespread austerity, public expenditure (-0.1% q-o-q) was that component that showed the least contraction.

Therefore, yesterday’s data confirm that Q4 economic activity has been hurt by the slowdown in world trade. While countries in the periphery stayed stuckin recession, open core economies such as Germany and Belgium have seen their exports brutally hit by weaker international demand.

End of recession not in Q1
The length and depth of this recession is particularly striking. This is reflected in the exceptional contraction in private consumption. Indeed, such a prolonged contraction in consumption (12 quarters of contraction in the last 4 years) has never been seen before.

German economy likely to pull out of recession in Q1
Nevertheless, recent business confidence surveys (PMIs1), EC surveys) suggest that Q1 2013 will be better than Q4, but still in contraction territory. However recent data also highlight the increasing divergence between Germany and the rest of the euro area. German economy 2) is already in the recovery path as early as Q1 2013, while countries in the periphery are likely to continue with negative growth in 2013 due to fiscal austerity and credit crunch.

Comments (0)

*Required field

Captcha * Time limit is exhausted. Please reload the CAPTCHA.