Investment and spending drive eurozone GDP growth of 0.4% in Q4

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Economic growth in the eurozone was confirmed at a 0.4 per cent quarterly pace at the end of last year, driven along by a healthy rise in investment and consumer spending.

A final reading from Eurostat came in line with a flash estimate in the final three months of 2016 – with the 0.4 per cent matching the pace seen in the third quarter and picking up from 0.3 per cent in the first half of the year.

Overall 2016 growth came in at 1.7 per cent, below the UK’s 1.8 per cent and the EU’s wider 1.9 per cent in the year.

Growth in the eurozone looks to have picked up further momentum at the start of the year, according to a number of surveys which point to rising business output and higher consumer sentiment in the first quarter of 2017.

Household spending has been powering the eurozone’s economies over the last year and rose by 0.4 per cent in the quarter, while investment also showed signs of life up by 0.6 per cent after contracting 0.7 per cent, said Eurostat.

Estonia was the fastest growing economy in the 19 member bloc, expanding by 1.9 per cent, while Greece resumed its place as traditional eurozone laggard, contracting by a worse than expected 1.2 per cent in the fourth quarter.

Exports in the bloc were up 1.5 per cent – three times higher than the third quarter and the best reading in two years, while imports climbed 2 per cent from a 0.1 per cent decline in Q3. Overall, consumption added 0.2 percentage points to GDP, with investment adding 0.1 percentage point. A narrowing of the trade surplus placed a drag on growth.

A key year of major eurozone elections kicks off with a vote in the Netherlands last week and ending with Germany in September. Economists expect political uncertainty, coupled with rising inflation, to put the brakes on economic growth later on in the year.

“Surveys of firms’ demand for bank loans suggest that capital spending growth will edge down over the next few quarters”, said Jack Allen at Capital Economics.

“And if political risks in the region materialise, firms’ willingness to borrow, and banks’ willingness to lend, might fall more sharply”.

Economists at Barclays expect GDP growth to remain at a 0.4 per cent pace for the first two quarters of the year, tilted towards a stronger expansion in the first three months of 2017 as the eurozone reaps the rewards of low interest rates and a brightening global economy.

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