Euro area growth slows to seven-year low as France and Italy contract

14 February 2020, 11:04 | Updated: 14 February 2020, 15:22

Economic growth in the 19-nation area which use the euro has fallen back - led by the French and Italian economies finding a reverse gear.

An early estimate of eurozone output by the EU's Eurostat service found collective growth of 0.1% in the final three months of 2019 following a figure of 0.3% in the July-September quarter.

That left the year-on-year rate of growth at 0.9% - its weakest level for seven years.

The slowdown in the final three months was driven by the bloc's three largest economies as France contracted by 0.1% and Italy shed 0.3%.

The dominant force that is Germany continued to stagnate - recording zero growth.

Europe's manufacturing powerhouse has been plagued by weak demand abroad - mostly a consequence of the US-China trade war and its knock-on global effects that have hit order books.

It has relied on consumer spending and services businesses to prop up output.

The slowdown has also coincided with a period of massive structural change in its flagship car industry - bruised since the VW diesel emissions scandal and forcing firms to invest billions on electric and autonomous vehicle technology.

The coronavirus outbreak threatens to add to Germany's export headaches as its key market of China is gripped by business disruption through efforts to contain the COVID-19 strain.

The possibility of a no-deal Brexit at the conclusion of this year's transition period is another risk.

UK growth for the final quarter of 2019 was separately measured at 0% - hit by political and economic uncertainty linked to Brexit, December's general election and the effects of the trade war.

However, unlike in the eurozone, the Bank of England has held off providing support after noting a pick-up in economic activity since Boris Johnson secured his large majority.

The European Central Bank announced in September that it was restarting its bond-buying programme in a bid to help support lending alongside a negative interest rate policy.

The bank, now under the leadership of Christine Lagarde, has left the door open to the possibility of further stimulus.

The remarks - coupled with the safe haven status of the dollar amid coronavirus uncertainty - have helped push the euro to near-three year lows against the greenback.

Another factor has been growing concern about a political vacuum in Germany after the resignation of Angela Merkel's heir apparent as leader of their CDU party - the largest in the current governing coalition.

But Barret Kupelian, senior economist at PwC, said there was some good news in the Eurostat figures.

He wrote: "The bright spot in the eurozone continues to lie in the peripheral economies.

"With the exception of Greece, all of the bailout economies have surpassed pre-crisis output levels and continue to grow at strong rates."

He added: "Eurozone growth could pick up later in the year if the global economy stabilises.

"However, there are many uncertainties relating to global trade as well as the coronavirus, which could end up disproportionately affecting some of the larger eurozone economies."