Eurozone Q4 GDP: Flat print with weak details, supporting earlier rather later rate cuts

  • 30 Enero 2024 (5 min read)

Key points:

  • Eurozone GDP growth was flat in Q4 23 coming in between ours and market expectation.
  • 2023 GDP rose by a meagre 0.5% in line with our long held below consensus view. Carry over and forward looking indicators suggest no meaningful change of course this year (AXA IM: 0.3%).
  • While situation differs significantly across countries, expenditure details point to adverse momentum in domestic demand.
  • Latest data points to downside GDP revisions in March by ECB staff. Upcoming inflation prints will be crucial to pin down the start of ECB easing cycle – our baseline remains for June, but today’s print confirms April is definitely on the cards. 

Eurozone Q4 GDP growth was flat, coming between our forecast (AXA IM: 0.1% q/q) and consensus (-0.1% q/q). The last quarter of the year generated little surprise, confirming our baseline of broad stagnation, all the more so since we had flagged downside risks to our Q4 GDP forecast. All in all, euro area GDP grewby 0.5% in 2023 in line with long held below consensus view, much weaker than the US (2.5%).

At the country level, Spain topped again the large four euro area economies growing by 0.6% q/q, generating a significant upside surprise (AXA IM and consensus: 0.2% q/q). Italy finished the year on a positive note with GDP growing by 0.2% (AXA IM: 0.1% q/q, consensus: 0.0% q/q). Meanwhile, France growth was flat for a second quarter in a row, and Germany entered a technical recession with its GDP falling for a second consecutive quarter (-0.3% q/q after -0.1% q/q). Across all released economies, Portugal was top of the class in Q4, more than offsetting a small Q3 GDP contraction with a 0.8% q/q boost in Q4.

Domestic demand faltering. The quick Destatis press release highlights a marked decline in Germany gross capital formation across construction and machinery and equipment. Likewise, Italy’s press release mentioned a negative contribution from domestic demand. Thus, the slight headline uptick was underpinned by net exports. A similar story took place in France, with net trade contributing +1.2pp, while both private consumption and investment fell by 0.1% q/q and 0.7% q/q respectively. Even in Spain which significantly surprised expectations, household consumption growth was weaker than in the previous two quarters and investment fell for a second consecutive quarter.

We maintain our below consensus view of anaemic growth performance this year. Critically, euro area inflation almost halved in Q4 23, and we thought private consumption could have been stronger, amid continued resilience in the labour market. Yet today’s print makes it clear that (past) monetary tightening is the overwhelming downward force. In the context of uninspiring business and consumer confidence, we maintain our below consensus /ECB staff GDP forecast foreseeing little sequential growth this year consistent with 2024 GDP growth at 0.3% (consensus: 0.5%, ECB: 0.8%)  - 2024 carry over is 0.0% (assuming flat growth all quarters of 2024).

Finally, during last week’s press conference, ECB President Lagarde mentioned that Q4 GDP was likely to be flat, in line with today’s outcome, though lower than December’s ECB staff forecast (0.1% q/q). Continued uninspiring business and consumer confidence, recent spike in oil prices are all conducive of downward revisions in March which would support the ECB (more) dovish narrative, towards its first rate cut in Q2. We argued in the wake of last week’s meeting that a rate cut in April can no longer be excluded, though June remaining our baseline. Today’s data reinforce the view that rate cuts rather sooner than later are warranted. Upcoming inflation prints will be crucial in pinning down the exact start of ECB’s easing cycle. April is definitely on the cards.


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