Via email from Barclays Capital : Euro Area Q4 ‘Flash’ GDP at -0.3% Quarter Over Quarter

Eurostat has estimated that euro area GDP contracted by 0.3% q/q in Q4 in its “flash” form (BC & consensus: -0.4% q/q). This is the first negative reading since Q2 09 (-0.2% q/q), and the most negative since Q1 09 (-2.7% q/q).

As we have already pointed out in our earlier comment (Euro area Q4 GDP wrap-up: Divergent news but still looking for -0.4% q/q for the euro area), today’s outturn is the result of a diverging trend vs expectations. On the negative side, we estimate (because we have applied our own seasonal adjustment to the published non-seasonally adjusted data) that the Greek GDP fell by 5.1% q/q, much more strongly than our -1.0% q/q forecast, and the Netherlands also dropped by a severe -0.7% q/q (BC & consensus: -0.3% q/q). Italy also came in below expectations (-0.1pp) at -0.7% q/q. On the bright side, Germany (-0.2% q/q, vs -0.4% q/q expected) and particularly France (+0.2% q/q, vs -0.2% q/q projected) came in stronger than expected.

After pencilling in the actual GDP levels for France and the Netherlands, and the quarterly changes from the eurostat release for the other countries (using FSO for Germany), our tracking estimate is at -0.358% q/q, thus close to the rounding point. Beyond the fact that we don’t have any precise information about the exact quarterly change for other large economies (Germany, Italy, Spain) – where decimal places can play a significant role – we would like also to highlight that Ireland should also be considered a significant source of uncertainty. Due to the usual volatility of its GDP quarterly path, it could almost make the overall aggregation sway one way on its own. We currently expect Irish Q4 GDP to fall by 0.7% q/q (after -1.9% q/q in Q3 and +1.4% q/q in Q2).

Although, we don’t have any details at this stage, we draw from the countries that have released expenditure breakdowns (France, the Netherlands, and only broad indications in the case of Germany) that investment is likely to have been the main source of upside surprise vs our forecast. One explanation for this could be that, despite the loss of confidence of businesses, which reportedly (notably by the PMIs) troughed in Q4, we believe that relatively clement weather (compared to what we have experienced so far in Q1) may have notably boosted construction investment. The confidence negative feedback loop might also have impacted businesses less than we feared.

Actual Q4 GDP prints [after Q3]

Euro area: -0.3% q/q (BC & consensus: -0.4% q/q) [after +0.1% q/q].
Germany: -0.2% q/q (BC: -0.4% q/q, consensus: -0.3% q/q) [after +0.6% q/q revised up from +0.5% q/q].
France: +0.2% q/q (BC: -0.2% q/q, consensus: -0.1% q/q) [after +0.3% q/q].
Italy : -0.7% q/q (BC & consensus: -0.6% q/q) [after -0.2% q/q].
Spain : -0.3% q/q (already released as flash) [after 0.0% q/q].
Netherlands : -0.7% q/q (BC & consensus: -0.3% q/q) [after -0.4% q/q revised down from -0.2% q/q].
Belgium : -0.2% q/q (already released as flash) [after -0.1% q/q].
Austria : -0.1% q/q (BC : -0.2% q/q) [after +0.2% q/q].
Finland : 0.0% q/q (BC: -0.3% q/q) [after +0.9% q/q].

Contracting Economies

Germany, Spain, Italy, Netherlands, Belgium, Austria, [Portugal and Greece].

Not Contracting Yet Economies

Finland, France

Europe is clearly in recession and that recession will accelerate to the downside as various austerity measures and tax hikes kick in.

As I said yesterday in EU to Punish Spain for Delaying Austerity Measures; European Job Losses Accelerate

Signs point to a deep and lengthy recession, not the shallow recession forecast by economists. I seriously wonder what the heck they are looking at.

Mike “Mish” Shedlock
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