Fra BN Amro:
Slow growth puts ECB on ice
Weak growth in 2018H2 and the start of 2019, to be followed by a modest pick-up
The eurozone economy lost significant momentum in 2018, with growth falling from rates of around 0.7% qoq in 2017, to rates of around 0.4% in 2018Q1-Q2. In 2018Q3, growth dropped to merely 0.2% as the economy received an extra blow from temporary problems in the car industry, which seem to have lingered in Q4.
Early indicators suggest that growth remained well below the trend rate of around 1.5% annualized in 2018Q4 and 2019Q1. Indeed, exports and industrial production probably contracted during these two quarters as the global economy and world trade lost further momentum, while growth in France was temporarily disrupted by strikes and street protest. Looking forward, we expect GDP growth to pick up somewhat after 2019Q1 and settle down at around 0.3-04% qoq, which is close to the trend growth rate.
Importantly, the temporary factors that depressed growth in 2018Q3-2019Q1 will
unwind. Moreover, we expect modest growth in industry and exports on the back of some
Group Economics
We expect the eurozone economy to grow only modestly and below consensus
forecasts in 2019 …
…exports will remain weak as the global economy has lost momentum on the back of
tightening financial conditions, while the US economy will cool off when the impact of
the fiscal stimulus fades away in the course of 2019
Fixed investment growth will weaken in sync with exports, but private consumption
growth should pick up thanks to declining inflation, modest fiscal stimulus and low
interest rates
There is still significant slack in the labour market and wage growth and core inflation
will remain subdued for a considerable time
Political risks remain elevated, with the political landscape fragmented in most
eurozone countries, which has resulted in minority governments, caretaker
governments and fragile coalition governments, and which hinders policy making and
economic reform
The ECB has ended its asset purchases, but is expected to keep interest rates
unchanged throughout 2019
We expect a first ECB hike in March 2020 but the risks are skewed towards even later
Bond yields are likely to be depressed in the coming months by dovish policy shifts,
but could rise modestly towards year-end as markets anticipate ECB rate rises
Marketing Communication
2 Eurozone Outlook 2018 – Slow growth puts ECB on ice – 21 January 2019
improvement in global trade growth in the second half of the year, and a pick-up in private
consumption and government spending in the eurozone. Eurozone GDP growth and main components GDP growth versus the trend % qoq / pps qoq pps
Exports weighed down by softer global growth
The main factor that depressed growth in 2018 was a drop in the contribution of net exports, largely because of a sharp slowdown in exports to emerging markets. Looking forward, our outlook for the global economy and world trade suggest that eurozone exports will continue to contract in 2018Q4-2019Q1 and grow modestly thereafter.
Importantly, we expect policymakers to facilitate a modest recovery in world trade growth. The FOMC seems less fixed on further interest rate hikes, the ECB may keep interest rates on hold for even longer, while China’s policymakers have stepped up stimulus. Moreover, we have assumed that there will be no escalation of protectionism, although uncertainty related to protectionism will continue to linger.
As the trade-weighted exchange rate of the euro has been moving in a narrow range since the summer of 2017, it is not expected to have a significant impact on competitiveness or trade flows. All in all, we expect net exports to reduce overall GDP growth by around 0.3pps in 2019.
