The Eurozone reported weak growth of just 0.1% for the final quarter of 2019 earlier today, with the regional economy hit by economic shrinkage in major players France and Italy. It is expected that Germany too will join in with negative GDP figures when it publishes its data next month.
Spain was the surprise package in today’s raft of economic data. Having grown by 0.4% in Q3, it managed a further 0.5% growth in Q4, bringing it up to 1.8% gained since the last quarter of 2018.
For France, the ongoing issues of political uncertainty – particularly revolving around strike action against pensions and salaries – has led to a fourth quarter plunge to -0.1% GDP. This is down from the 0.3% GDP growth in Q3 and double the estimated level of contraction. Despite this, Allianz bank still believes that France will see its Gross Domestic Product growth by 1.2% more in 2020 than it did last year.
In Italy, political division is commonplace, but large debts and hostility towards the European Central Bank have been the main issues over the past 18 months. Continuing this headache, the Istituto Nazionale di Statistica (ISTAT) reported that a drop in domestic demand was to blame for the -0.3% GDP in Q4 2019. This figure is the country’s worst since Q1 2013, and means Italian GDP made no gains since the end of 2018.
Given its poor performance, the International Monetary Fund has also waded in on the situation. With Italy the weakest forecasted EU nation for growth over the next three years, the IMF has made proposals surrounding wages, competition, and other financial inefficiency, but with a coalition government it will be hard for Italy to proceed with one clear direction of policy.
April will be an important time for France but especially Italy. With both nations reporting negative GDP figures last quarter, another negative three-month spell will officially mean recession; a blow to an economy but a hammer-blow to political credibility.