Household Spending Drives Eurozone Growth

Household spending, paired with a buildup in inventory, was the engine driving economic growth in the Eurozone during the financial quarter that ended in September, offsetting a rise in imports that slowed expansion some.

According to EU data released yesterday (Dec. 8), GDP in the 19 nations using the euro currency saw a 0.3 percent increase from Q2 and a 1.6 percent increase from Q3 a year ago. That result was in line with Eurosat’s projections and analyst predictions before the formal figures were announced.

Household and government spending both saw accelerated growth, alongside rises in stocks. However, investment activity was flat, and import rates rose faster than export rates, which combined to act as a drag on European recovery.

That slowing of exports may be of particular interest to the European Central Bank’s (ECB) policymakers, particularly as Chinese growth remains sluggish and general weakness of other large developing economies is widely expected to pull down the Eurozone’s fragile recovery.

To offset those potential headwinds, ECB officially released a new package of stimulus measures to boost growth and spark the inflation rate some, though concerns remain about a tenuous global situation economically and geopolitically. The possibility of another round of quantitative easing (bond buying) remains on the table.

Stock buildup is also another less than wholly encouraging sign for reasons that recent sluggishness in U.S. retail growth demonstrates; too much stock quickly becomes a problem, particularly since the corrections that occur when excess clears tend to put a damper on demand. However, the buildup itself is not a cause for alarm, as it may also be broadly indicative of confidence in the continued pace of economic expansion in the Eurozone.

And then there are the somewhat extraneous — but still observable — potential effects from security concerns rippling forth from the Paris attacks.

“We certainly have in mind that the situation ahead is full of geopolitical risks, and that’s why we have to be alert,” ECB President Mario Draghi said in a news conference Thursday. “That’s why we have to be certainly continuing our effort to pursue and achieve the price stability objective, well aware that the surrounding conditions may actually get worse because of these geopolitical risks.”