With a growth rate of 0.3% in Q4, the Euro-zone took another big step away from the recession. Thereby GDP growth beat consensus expectations of 0.2% q/q (Nordea: 0.2%), although it would still be an exaggeration to state the recovery is strong. Today’s data fits nicely into our broader expectations of a steady, albeit slow, recovery of the Euro-zone economy.
The positive surprise was broadly founded in most of the big Euro-zone economies with Germany up 0.4% vs. consensus expectations of 0.3%; France 0.3% vs. 0.2%. The Netherlands even saw 0.7% growth vs. expectations of 0.3%.
Germany remains the growth locomotive of the region, and again it was exports that drove growth, while domestic demand was weak overall. Government consumption stagnated and private consumption fell slightly back but investments were strongly up.
Q4 GDP supports our view of no further stimulus from the ECB
Today’s GDP data comes on the top of a Draghi, who at last week’s press conference appeared to focus on the positive elements of recent developments, although he left all doors open to add monetary easing in March. The GDP numbers are one brick to the ECB decision, but two other bricks are the inflation outlook (new staff projects due in March) and the short-end money market rates. With respect to the latter, the ECB do not want a defacto tightening via higher market rates at the current juncture. We see today’s data as supporting our view that the ECB will not add further stimulus at their March meeting.
The market reaction on this morning’s GDP data has been muted, but if anything the data are perceived as reducing the probability of further ECB stimulus. Euro swap rates are up a few basis points – 2Y: +2bp; 10Y: 4bp. EUR/USD gained a bit in the morning, though some of it has been pared again and EUR/USD is now trading just south of 1.37.
Nordea