Investment Institute
Market Alerts

Eurozone Q4 GDP: Flat print with weak details, supporting earlier rather later rate cuts

  • 30 January 2024 (5 min read)

Key points:

  • Eurozone GDP growth was flat in Q4 23 coming in between ours and market expectation.
  • 2023 GDP rose by a meagre 0.5% in line with our long held below consensus view. Carry over and forward looking indicators suggest no meaningful change of course this year (AXA IM: 0.3%).
  • While situation differs significantly across countries, expenditure details point to adverse momentum in domestic demand.
  • Latest data points to downside GDP revisions in March by ECB staff. Upcoming inflation prints will be crucial to pin down the start of ECB easing cycle – our baseline remains for June, but today’s print confirms April is definitely on the cards. 

Eurozone Q4 GDP growth was flat, coming between our forecast (AXA IM: 0.1% q/q) and consensus (-0.1% q/q). The last quarter of the year generated little surprise, confirming our baseline of broad stagnation, all the more so since we had flagged downside risks to our Q4 GDP forecast. All in all, euro area GDP grewby 0.5% in 2023 in line with long held below consensus view, much weaker than the US (2.5%).

At the country level, Spain topped again the large four euro area economies growing by 0.6% q/q, generating a significant upside surprise (AXA IM and consensus: 0.2% q/q). Italy finished the year on a positive note with GDP growing by 0.2% (AXA IM: 0.1% q/q, consensus: 0.0% q/q). Meanwhile, France growth was flat for a second quarter in a row, and Germany entered a technical recession with its GDP falling for a second consecutive quarter (-0.3% q/q after -0.1% q/q). Across all released economies, Portugal was top of the class in Q4, more than offsetting a small Q3 GDP contraction with a 0.8% q/q boost in Q4.


Domestic demand faltering. The quick Destatis press release highlights a marked decline in Germany gross capital formation across construction and machinery and equipment. Likewise, Italy’s press release mentioned a negative contribution from domestic demand. Thus, the slight headline uptick was underpinned by net exports. A similar story took place in France, with net trade contributing +1.2pp, while both private consumption and investment fell by 0.1% q/q and 0.7% q/q respectively. Even in Spain which significantly surprised expectations, household consumption growth was weaker than in the previous two quarters and investment fell for a second consecutive quarter.

We maintain our below consensus view of anaemic growth performance this year. Critically, euro area inflation almost halved in Q4 23, and we thought private consumption could have been stronger, amid continued resilience in the labour market. Yet today’s print makes it clear that (past) monetary tightening is the overwhelming downward force. In the context of uninspiring business and consumer confidence, we maintain our below consensus /ECB staff GDP forecast foreseeing little sequential growth this year consistent with 2024 GDP growth at 0.3% (consensus: 0.5%, ECB: 0.8%)  - 2024 carry over is 0.0% (assuming flat growth all quarters of 2024).

Finally, during last week’s press conference, ECB President Lagarde mentioned that Q4 GDP was likely to be flat, in line with today’s outcome, though lower than December’s ECB staff forecast (0.1% q/q). Continued uninspiring business and consumer confidence, recent spike in oil prices are all conducive of downward revisions in March which would support the ECB (more) dovish narrative, towards its first rate cut in Q2. We argued in the wake of last week’s meeting that a rate cut in April can no longer be excluded, though June remaining our baseline. Today’s data reinforce the view that rate cuts rather sooner than later are warranted. Upcoming inflation prints will be crucial in pinning down the exact start of ECB’s easing cycle. April is definitely on the cards.

Pesky Data
Macroeconomics

Pesky Data

  • by Gilles Moëc
  • 19 February 2024 (10 min read)
Investment Institute
Take Two: US inflation eases; Japan falls into recession
Macroeconomics Weekly Market Update

Take Two: US inflation eases; Japan falls into recession

  • by AXA Investment Managers
  • 19 February 2024 (3 min read)
Investment Institute
Take Two: OECD raises global growth forecast; S&P 500 hits 5,000
Macroeconomics Weekly Market Update

Take Two: OECD raises global growth forecast; S&P 500 hits 5,000

  • by AXA Investment Managers
  • 12 February 2024 (3 min read)
Investment Institute
Zoom on the Boom
Macroeconomics Viewpoint Chief Economist

Zoom on the Boom

  • by Gilles Moëc
  • 12 February 2024 (10 min read)
Investment Institute
Deferred Confidence
Macroeconomics

Deferred Confidence

  • by Gilles Moëc
  • 05 February 2024 (10 min read)
Investment Institute
Take Two: Eurozone avoids recession; Fed and BoE keep interest rates on hold
Macroeconomics Weekly Market Update

Take Two: Eurozone avoids recession; Fed and BoE keep interest rates on hold

  • by AXA Investment Managers
  • 05 February 2024 (3 min read)
Investment Institute

    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ.

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    © AXA Investment Managers 2024. All rights reserved

    Are you a Professional Investor ?

    This website is available in English only and directed at professional, institutional or qualified investors. It is not suitable for retail investors. As such, some of the funds, products and services described on this website are not available for retail investors under the MiFID II (Directive 2014/65/UE). By pressing accept you confirm that you are a professional investor and agree to AXA Investment Managers' Legal Information and Terms of Use.