RaboResearch - Economic Research

Eurozone economy steams ahead into 2018

Economic Comment

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  • The Eurozone economy posted its strongest growth in ten years in 2017 at 2.5%
  • The economies of France and Spain also had a good year
  • The outlook for 2018 is strong as well, with a good start of the year
  • Inflation remains low and therefore monetary policy is expected to remain loose until at least 2019

2018 has big shoes to fill after strong 2017

Eurozone growth in the fourth quarter of 2017 came in at 0.6% q-o-q, as expected. This brings the annual growth for the Eurozone to 2.5%, compared to 1.8% in 2016. On the national level, France and Spain also released growth figures. The French economy finished 2017 on a strong note, posting 0.6% quarterly growth, 0.1%-point above our forecast. The breakdown showed growth was broad-based, with especially investment picking up strongly. This brings 2017 growth for France to 1.9%, from 1.1% in 2016, the highest growth figure since 2011.

The Spanish economy grew by 0.7% q-o-q in the fourth quarter, 0.1%-point above our forecast and only 0.1%-point less than in the third quarter. The breakdown is not yet known, but it seems that the Catalan crisis has had limited impact on Spain’s overall economy. Spain’s economy grew by 3.1% in 2017, compared to 3.3% in 2016.  

Looking ahead, the Eurozone is expected to continue growing strongly. The Economic Sentiment Indicator of the European Commission declined slightly in January, but still points to a strong growth acceleration. And the Eurozone PMI, proven to be a more accurate predictor of economic growth in the Eurozone, increased even further in January (Figure 2). PMI’s are also showing a broad increasing pattern across countries. This puts upwards pressure on our 2018 growth forecast of 2.2%, which we will likely revise during our next forecasting round in March. We expect inflation to remain below the ECB’s target of close to 2% this year. As such, we do not expect a rate hike until at least mid-2019, further accommodating economic growth in the Eurozone.

Figure 1: Still going strong; 2018 likely to be revised upwards
Figure 1: Still going strong; 2018 likely to be revised upwardsSource: Macrobond, Rabobank
Figure 2: PMI points to strong start of 2018
Figure 2: PMI points to strong start of 2018Source: Macrobond, Rabobank
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