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Eurozone Logs Weakest GDP Growth Since 2013

Eurozone economy logged its weakest growth in more than six years in the final quarter of 2019, as France and Italy contracted unexpectedly.

Separate data showed that headline inflation accelerated further at the start of this year, while core price growth eased.

According to the preliminary flash estimate from Eurostat, gross domestic product in the 19-nation bloc grew only 0.1 percent sequentially, the slowest since early 2013.

The quarterly growth was forecast to slow marginally to 0.2 percent from 0.3 percent in the third quarter.

On a yearly basis, economic growth eased to 1 percent from 1.2 percent. This was also weaker than economists’ expectations of 1.1 percent.

With a bottoming out of manufacturing, modest fiscal improvements and some reversal of the inventory drawdowns, the base case is that eurozone GDP growth is set for a subdued recovery over the course of the year, Bert Colijn, an ING economist, noted.

Growth was slowed down primarily by the renewed decline in industrial production, Christoph Weil, a Commerzbank economist, said.

However, Weil observed that sentiment indicators are signaling that the low point in this sector has been passed. This gives hope that the euro zone economy will not slide into recession. Nevertheless, the upswing should remain anemic, the economist added.

Due to weak spending and investment, the French economy contracted 0.1 percent in the fourth quarter, which was the first decline since the second quarter of 2016.

Italy’s economy shrank for the first time in five quarters. GDP was down 0.3 percent after expanding 0.1 percent each in the previous two quarters. On the other hand, driven by exports, Spain’s growth improved to 0.5 percent from 0.4 percent.

The German economy is expected to expand 0.1 percent in the fourth quarter. Data is due on February 14.

In the whole year of 2019, the euro area grew 1.2 percent, which was the slowest since 2013.

The German?economy grew at the slowest pace in six years in 2019, up 0.6 percent, official data showed earlier this month. Spain GDP grew 2 percent in 2019.

The International Monetary Fund, early this month, downgraded Eurozone growth outlook for 2020 by 0.1 percentage points to 1.3 percent.

Flash data showed that euro area inflation accelerated for the third straight month in January, driven by energy prices. Inflation rose to 1.4 percent from 1.3 percent in December.

Nonetheless, headline inflation remained well below the European Central Bank’s target of “below, but close to 2 percent.”

Meanwhile, core inflation that excludes energy, food, alcohol and tobacco, eased back to 1.1 percent in January from 1.3 percent a month ago. The expected rate was 1.2 percent.

On a monthly basis, consumer prices were down 1 percent in January.

With the economy growing at a meager pace and wage growth coming off the boil, core inflation is expected to remain around 1 percent this year, Jack Allen-Reynolds, an economist at Capital Economics, said.

As a result, the economist penciled in a 20 basis point cut to the ECB’s deposit rate, and for the bank to increase its corporate bond buying, in September this year.

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