Eurozone economic growth held up in the fourth quarter, with quarterly growth at around trend. GDP was up by 0.3% qoq, which was the same rate as in Q3. This marks a slowdown from growth of 0.4-0.5% in the first half of the year.
The monthly hard data had suggested a weaker outcome. For instance, both eurozone retail sales and industrial production shrank by 0.1% qoq in Q4. We do not have details, though it seems that in Germany government spending was again a major contributor to growth (possibly reflecting expenditure on immigration). This means that the eurozone private sector may be on a weaker footing than suggested by the headline.
These GDP numbers should not be used as an excuse for complacency by policymakers. Even if the economy maintains this momentum, this would not be sufficient to generate underlying inflationary pressures, while inflation expectations have collapsed. Unemployment has come down but remains unacceptably high.
In addition, headwinds for the eurozone economy are mounting, with financial conditions tightening, not least due to the global market turmoil and the strength of the euro. Furthermore, the global economic environment is become increasingly troubled.
We continue to think that further monetary easing is required, with further policy rate cuts on the cards from March onwards. However, more fiscal stimulus – in the form of public investment – in countries that have room for manoeuver, and structural reform more widely – is also needed to support monetary policy.