Euro area economy expands strongly in Q4 2016, growth to remain firm in Q1 2017

The fourth quarter economic growth of euro area was downwardly revised from the initial estimate; however, it continues to remain above trend and the early indications for the first quarter of 2017 are positive. The December quarter GDP was revised down from the flash estimate of 0.5 percent to 0.4 percent quarter-on-quarter.

This is the tenth consecutive quarter that the currency bloc has posted growth at or above the potential level, assuming that the potential quarterly growth is around 0.3 percent. The detail figures have not been released yet; however, private consumption is likely to have positively contributed around one percentage point to full-year growth of 1.7 percent, noted Nordea Bank in a research report.

The key driver of the economic growth is unlikely to change in 2017; however, higher inflation might possibly hold back consumption slightly. Investment is expected to add around half a percentage point, whereas net exports are unlikely to contribute much.

Greece and Finland were the only EU nations where the real GDP growth dropped on a quarter-on-quarter basis in the fourth quarter. On a year-on-year basis, GDP expanded in all nations. Finland and Greece recorded a growth of just 0.3 percent year-on-year.

The early indications for the first quarter are pointing towards similar growth early in 2017 for the euro area. The euro area’s economy is expected to expand 1.6 percent in 2017, according to Nordea Bank. The biggest risks for the currency bloc are political.

“We acknowledge the risk of eurosceptic parties gaining influence, but on the other hand, a reform-minded president in France (Emanuel Macron or François Fillon) could be very good news for France and Europe”, added Nordea Bank.