Hot on the heels of news yesterday that the Spanish economy remains stuck fast in recession is confirmation that growth in the German economy stalled in the final quarter of 2009 and that the Italian economy fell back. Given that German exports had been showing a degree of consistency with gains showing in each of the last three months of 2009 this news is clearly disappointing and to some extent also surprising. Nevertheless, it appears that a larger than expected decline in German consumption and investment was enough to strangle export led growth. We suggest that the first quarter 2010 GDP figures may also show a similar level of consumer resistance providing further worry for investors.
Whilst the separate national GDP figures are mixed it appears that overall the Eurozone area managed to maintain an extremely small 0.1% to 0.2% GDP gain in Q4 compared to the more reasonable 0.4% gain recorded for Q3. Individual national statistics confirmed today do, for what little detail they contain, provide an interesting insight into just how varied and fragile the underlying state that many member economies are in. Not all though. For instance, latest figures released by the French statistical office Insee show that the French economy surprisingly grew by a much larger than expected 0.6% in Q4 – thus maintaining respective 0.2% and 0.3% GDP gains that had been recorded in Q2 and Q3. Reasoning and detail as to why France would appear to have somehow managed to buck the trend of other Eurozone member states again is as usual patchy at best leading some to conclude that much of the ‘growth’ might well be due to raised inventory production plus stimulus factors alone. That said, given the seemingly high value of the Euro throughout 2009 it had been somewhat surprising that French exports remained buoyant through Q4 and to be fair there has also been evidence of higher consumer confidence in France than in many other Eurozone member states.
Less surprisingly though is that the Italian economy fell back by 0.2% in Q4 following what some had seen as a very surprising gain of 0.6% in Q3 (itself put down to a combination of growth in exports and private sector consumption despite the admission that construction had markedly declined during Q3). Again we have little specific detail yet to explain why the Italian economy has taken a sharp dip backwards. However, we continue to express concern that other factors such as high levels of public sector debt are likely to have an increasing impact on the ability of the Italian economy to rebound in the months and years ahead.
Aside from French Q4 GDP figures the combined nature of available Q4 Eurozone GDP information so far likely confirms that despite a general rise in industrial consumption in some countries that can probably be put down to ongoing stimulus action plus some temporary resurgence in exports there remains little appetite from consumers to spend unless of course there has been an added bonus of stimulus benefit involved. Both the EU and ECB should take note of this. The figures also show that despite the common perception that the Eurozone area is in a much stronger position than say the UK to make reasonable progress toward growth sustainability in 2010 the process may yet take very much longer to achieve than some might prefer to expect.
We may also be led to suggest that despite France enjoying stronger consumption than Germany inventory rebuild may also have played a part in assisting French growth. The bottom line is that despite expectations that the Eurozone area as a whole would likely enjoy sustainable resumption of growth during 2010 it may well be that growth in the first two quarters of 2010 will be patchy at best. Much of course will depend on attitude toward further inventory rebuild, of future ECB interest rate policy and of course, of whether remaining stimulus are in fact maintained or extended. Moreover, much may also depend on how the EU handles the various sovereign debt issues that are attached to Greece right now but that already have particular impact on Spain and Portugal. Having also expressed our concern on Italy we should not be unaware to the fact that by it poor handling of the Greece situation and by the futile attempt it made to draw market concern away form Greece yesterday The EU may have inadvertently strangled or at least pushed back the potential for sustainable growth resumption in the Eurozone area by a year or more. We will see but my guess is that markets will now be far more aware as to the practicalities of how the group of more troubled Eurozone nations handle deficits and burgeoning levels of national debt.
The patchy nature of Eurozone growth and the continuing recession in countries such as Spain together with the evident slipping back of Germany and Italy send a loud message to EU leaders plus those charged with running the ECB that sustainable Eurozone growth is going to be very much harder and will take longer to achieve than thought!
