Eurozone economy records worst year since 2013
Uncertainty related to Britain's departure from the EU has hobbled business and trade
LONDON — The eurozone economy, which is made up of the 19 countries that use the euro currency, ended 2019 with a whimper and recorded its worst year of growth since it was mired in a debt crisis in 2013.
In its first estimate for the quarter, statistics agency Eurostat said the eurozone grew by only 0.1% from the previous three-month period. That is its lowest rate since the first quarter of 2013, when the single currency bloc was fighting a debt crisis that nearly spelled ruin for the euro itself.
For 2019 as a whole, the eurozone grew by only 1.2% – again its lowest rate since 2013, when it shrank by 0.2%.
Though Eurostat did not provide explanations to its figures published Jan. 31, the report confirms how the eurozone lost steam as a result of worries over a trade war between the U.S. and China that is having knock-on effects around the world. Following the conclusion of a first round of trade talks with China, President Donald Trump is turning his gaze towards Europe and is threatening tariffs over what he considers to be the unfair treatment of American businesses by the European Union.
Uncertainty related to Britain’s departure from the EU, which is officially taking place Jan. 31, has also hobbled business and trade.
The quarterly growth recorded was lower than the 0.2% anticipated in the markets and was largely due to the fact that two of the eurozone’s biggest economies, France and Italy, both contracted. According to their respective statistics agencies, their economies shrank by 0.1% and 0.3%.
France has endured a series of strikes over the winter that had a modest impact on household spending. The main reason why France unexpectedly shrank during the quarter was related to a draw-down of stocks by firms. That has the potential to be reversed in the first quarter of 2020, which could see France bounce back.
Italy’s quarterly performance was its worst since 2013 and though a breakdown was not provided, most economists think it was due to weak domestic demand.
Spain provided some counterweight as it grew by a solid quarterly rate of 0.5%, largely on the back of a strong export performance.
Many countries, including Germany, have still to report quarterly numbers so the overall eurozone number could be revised next month.
There are hopes that Europe could enjoy a spring-back this year, largely because the trade tensions between the U.S. and China have eased following their so-called Phase 1 agreement and amid the greater Brexit certainty.
“With an encouraging recent rise in sentiment indicators, we still think that the eurozone economy should see growth pick up gradually in 2020,” said Rosie Colthorpe, European economist at Oxford Economics.
In a separate report, Eurostat found that the annual rate of inflation across the eurozone rose to 1.4% in January from 1.3% the previous month, largely as a result of higher energy prices. The core inflation rate, which strips out volatile items such as food and energy, fell to 1.1% in January from 1.3%.
The fall in the core rate is likely be a cause for concern for policymakers at the European Central Bank, including its new president, Christine Lagarde. By whatever measure, inflation remains below the European Central Bank’s goal of just below 2%, and could fall further next month if the recent drop in oil prices following the virus outbreak in China persists.
The ECB is running a stimulus program to nudge up inflation and growth, but is also undergoing a thorough review of how it tries to do that, including whether it should change its inflation target.