The 0.3% quarterly drop in eurozone GDP in the final quarter of 2011 was in line with expectations. At the country level, the surprisingly good performance of the eurozone’s second largest economy, France, with +0.2% q-o-q, was encouraging (external trade more or less offset the drag from inventory changes, private consumption and investment contributed 0.1 and 0.2 percentage points respectively to growth). By contrast, the Netherlands emerged as a new “problem child“ among the larger eurozone countries. As in Italy, Dutch GDP tumbled 0.7% on the previous quarter, following on the heels of the fall already seen in the third quarter 2011. In both Italy and the Netherlands overall output is now down on a year earlier (by -0.5 and -0.7% respectively). Spain performed somewhat better, with GDP up 0.3% on a year earlier and a sequential rate of minus 0.3% in the fourth quarter 2011.
The broad index on eurozone business sentiment published by the EU Commission improved in January for the first time since February last year. Capacity utilization in the eurozone also picked up again marginally at the start of the year. Although these upward trends first have to take root before we can talk of a turn for the better, and eurozone GDP could slip slightly again in the first quarter, in our view the economy is not set to shrink over the year as a whole. Rather, we are penciling in a (slender) 0.3% increase in eurozone gross domestic product in 2012. Provided that the turmoil emanating from the sovereign debt crisis gradually abates, we actually see pretty good prospects that things will turn out rather better than worse.