Overall the GDP growth rates for the final quarter 2013 published by Eurostat today paint an encouraging point of departure for the current year. The majority of member states, including heavyweightItaly, have shaken off recession. Unlike last year, most eurozone countries show a statistical overhang for 2014. This is particularly marked inPortugal(+0.8%), along with theNetherlands(+0.7%) andGermany(+0.6%).
The upward revision in German fourth-quarter growth to 0.4% (up from 0.25%) came as a positive surprise. It underpins our GDP forecast of 2.0% for this year, on the heels of average annual growth of only 0.4% in 2013.
There is also good news from France. Buoyed by domestic demand, French GDP in the fourth quarter of 2013 increased by 0.3% on the previous quarter, on a par with neighboringSpain. Average growth in 2013 in the eurozone’s second largest economy thus came in at 0.3%. For this year we are expecting an increase of 1.0%.
In the final quarter of 2013Italy’s economy saw the first increase for two years, with a small rise of 0.1% (annual average 2013: -1.9%). In the course of this year the Italian economy is likely to firm up.
Despite lingering risks for the economic outlook, such as flagging reform zeal or possibly emerging doubts about the soundness of the European banking sector and pubic finances in the course of the Asset Quality Review and bank stress tests, a host of arguments suggest the pickup in the economy will continue. In most eurozone countries business sentiment has improved significantly in recent months. Capacity utilization is rising. The world economy and world trade are likely to increase more strongly than in 2012/2013. On the back of improved competitiveness, the eurozone periphery is also likely to benefit in particular. On the domestic demand side, low inflation is boosting consumer purchasing power, while the fiscal drag is likely to be lower. Signs of a pickup in house prices are also encouraging.
In combination with the statistical overhang for 2014 of a good 0.3%, we expect moderate growth in the eurozone this year in the region of 1.5%.