Eurozone economy inches ahead as Germany, Italy falter

The eurozone economy continued to grow in the fourth quarter, official figures out on Thursday showed, albeit marginally.

GDP growth kept pace with the third quarter to rise 0.2% in the final three months of 2018, in line with forecasts. Year-on-year, GDP growth was 1.2% compared to 1.6% in the third quarter, said Eurostat, the European Union’s statistics office.

Employment, meanwhile, increased 1.2% year-on-year across the currency bloc, a slight slowing on the 1.3% seen in the previous three months.

“The eurozone headline just about held onto its 0.2% growth rate, thanks to strong growth in a number of smaller economies,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. “We caution, however, that a downward revision is still a risk once the Irish data are fully incorporated.

“Germany and Italy were the two big downside surprises, with quarter-on-quarter headlines of 0.0% and -0.2% respectively, but the numbers were decent elsewhere.

“Looking ahead, we are optimistic that the quarter-on-quarter run-rate in the eurozone as a whole will increase to 0.3%-to-0.4% in the first half of the year.”

Germany's economy is being held back by a number of issues, including Brexit uncertainty – specifically fears of the UK quitting without a deal – slower global growth, and tougher conditions for car manufacturers following the introduction last year of tougher emissions tests.

Germany did, however, narrowly avoided a technical recession in the fourth quarter, with flat GDP growth of 0.0% an improvement on the 0.2% contraction in the three months to September.

Destasis, Germany’s official statistics body, said that domestic demand had made a positive contribution while trade had not.

Craig Erlam, senior market analyst at Oanda, said: “There hasn’t really been much of a bullish case for the euro recently and Germany avoiding falling into recession by the skin of its teeth doesn’t exactly inspire any change in that. The GDP data for the fourth quarter fell short of analyst expectations of 0.2%, with the economy instead flatlining. The number is subject to revision though, so it may be too early to celebrate just yet.”