Fra BNP Paribas:
Eurozone: Building downside risks to growth
Recent data – the expenditure breakdown of German Q4 GDP and the Ifo/PMI surveys – highlight the increasing headwinds to the eurozone economy from weak global conditions.
German growth in Q4 was held back by a fall in exports, the second consecutive weak quarterly reading, which offset strong final domestic demand, particularly fixed investment and government consumption. The Ifo business climate survey was soft, with the headline index falling to its lowest since December 2014.
It was dragged down by a second successive sharp monthly decline in the expectations index: over the past two months it has fallen by 5.7 points, the largest two-month drop since 1992, apart from the global financial crisis. The current conditions index, however, edged up and is still at solid levels.
This split, between expectations and current conditions, may reflect firms becoming increasingly concerned that external weakness will either intensify or feed through to domestic conditions, or both. The fall in the Ifo chimes with the sharp drop in the German PMI manufacturing survey, released yesterday. The services PMI held up, again consistent with resilient domestic demand.
