1Q GDP: flat q/q, -0.1% y/y (revised from flat y/y)
4Q GDP: -0.3% q/q, +0.7% y/y
3Q GDP: +0.1% q/q, +1.3% y/y
2Q GDP: +0.1% q/q, +1.6% y/y
–

PARIS (MNI) – Foreign trade lent another boost to Eurozone economic
activity in 1Q, offsetting the weakness in domestic demand and a further
drag from inventory changes, Eurostat said Wednesday, confirming its
flash estimate of zero GDP growth.

On the expenditure side, private consumption stabilized in 1Q after
a half-point drop in 4Q. Retail sales edged up 0.1% in 1Q, but car sales
skidded lower in most markets. Government spending recovered by 0.2%
after two quarters of contraction. Both private and public consumption
had a negligible impact on 1Q GDP growth.

More worrisome, gross fixed-capital investment plunged 1.4% in 1Q,
deepening the slide during the previous year and amputating 0.3 point
from GDP growth.

Exports bounced back 1.0% on the quarter after a 0.7% dive in 4Q.
Amid anemic domestic demand, imports managed only a 0.1% upturn from a
1.7% plunge. As a result, foreign trade added 0.4 point to GDP growth,
just as in 4Q.

A further drawdown in inventories, linked to the inertia of
imports, trimmed 0.2 point from GDP after a 0.3-point drag in 4Q and 3Q.

On the production side, manufacturing slipped another 0.1% after
-1.5% in 4Q. Construction tumbled 1.1% after three quarters of decline,
shaving 0.1 point from GDP. All other sectors, including agriculture and
the services had no significant impact on growth.

The 0.5% quarterly GDP rebound in Germany and the dynamism of some
smaller economies was just enough to offset another 0.3% contraction in
Spain, a 0.8% dive in Italy, a 0.2% fall in the Netherlands, a 0.1% dip
in Portugal and a 0.3% fall in Cyprus. Activity in France was stagnant.
GDP gains were also registered in Belgium (+0.3%), Austria (+0.2%),
Finland (+0.8%), Estonia (+0.5%), Slovenia (+0.2%) and Slovakia (+0.7%).

Leading indicators have since deteriorated to such an extent that a
downturn starting in 2Q appears inevitable. In hindsight, the flat GDP
reading in 1Q appears more like a temporary pause in a recession that
began in 4Q and was interrupted by the rebound in exports.

The Eurozone composite PMI fell to a near three-year low of 46.0 in
May, driving all the larger economies into contraction territory. With
new orders also falling at the fastest pace in nearly three years, the
slump can only continue.

Fiscal tightening, rising unemployment and subdued wage gains amid
still high inflation are a recipe for anemic consumption ahead. Among
the larger economies, only in Germany are consumers likely to be better
off by July, which would accentuate the growing divergence across
Eurozone economies.

Extended recessions can be expected throughout most of the southern
flank, which will drag down the overall performance of the Eurozone.

Last month the European Commission revised down its Eurozone
projections to show a full-year contraction in GDP of 0.3%, with
negative growth in seven of 17 member states, including the Netherlands
(-0.9%). Greece would suffer most (-4.7%), followed by Portugal (-3.3%)
and Spain (-1.8%) — all countries where break-neck budget consolidation
is taking its toll.

In the core countries, growth would be subdued, the Commission
predicted, as Germany (+0.7%) faces waning export demand from its
neighbors and France (+0.5%) could see its consumption motor stall amid
high unemployment and budget tightening.

“Going forward, based on the assumption that the euro area will
successfully handle crisis-related challenges, a return of confidence
over the course of 2012 is expected,” the Commission said bravely. “The
positive impact on domestic demand components is expected to become
strong enough to pull the economy out of recession later in 2012.”

Next year, a recovery in consumption and investment and a boost
from exports are expected to lead to a GDP upturn of 1.0%.

The OECD is on the same wave-length, forecasting a GDP dip of just
0.1% this year but a weaker upturn of 0.9% next year. Again, the working
assumption is that activity will gradually recover in the second half of
this year – “provided that policy actions are sufficient to improve
confidence.”

“The scale of the simultaneous fiscal adjustment will be a
significant drag on demand growth,” the OECD conceded in its spring
Economic Outlook. “However, the fragility of confidence in public
finances of euro area countries, and a high and rising debt-to-GDP
ratio, warrant ongoing measures to bring the public finances onto a
sustainable path.”

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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