The persistent economic weakness in most of the 19 member states comprising the eurozone continues unchecked, with economic growth rising by a mere 0.1% in the fourth quarter of 2019, the slowest pace of growth in almost seven years.
Gross domestic product (GDP) growth in the eurozone inched upwards by just 0.1% in the fourth quarter of 2019 from Q3, according to the EU statistics agency Eurostat. The French and Italian economies contracted in the fourth quarter, adding to fears eurozone economies are close to stalling.
France's economy (Europe's second largest after Germany) shrank by 0.1% while Italy's GDP lost 0.3% in Q4. This was the worst performance for Italy's economy since early 2013, and was traced to weaker domestic demand for goods and services. Germany's economy grew by 0.6% last year, its worst since 2013, due to weak export growth and a persistent manufacturing slow down.
Weak business investments and the ultra-loose monetary policy regime still championed by the European Central Bank (ECB) are crimping growth at a time when new threats such as the raging coronavirus outbreak ravaging China (Germany's top export partner) and Brexit are at the front door.
Analysts say ECB's stimulus that's maintained the benchmark interest rate at a record low of zero percent has outlived its usefulness. Quantitative easing should be replaced by debt monetization, which is more expansionary. Europe's big central banks, however, are still huge fans of quantitative easing -- which greatly benefits eurozone governments -- and have been since the Great Recession of 2008.
In its latest note to investors, HSBC claims the eurozone might now be at a "turning point" for economic activity due to disappointing growth in 2019.
"Investment has held up in the euro zone, albeit with France taking the baton from Germany but a sluggish global environment and easing capacity constraints point to possible weakness ahead," said HSBC Senior European Economist Fabio Balboni.
Balboni pointed out the continuing economic weakness is further evidence that it "does not take much to knock the euro zone into contraction." He noted that with the multitude of downside risks and with loose central bank monetary policy devoid of any utility, any unpleasant surprise might have a profound effect on any recovery in growth.
HSBC noted the persistent weakness of German manufacturing (largely due to a dearth of investments) remains a growth killer. Germany's industrial production figures for Q4 stood at -3.5% against market expectations of +0.1%. The stalwart services sector is now showing uncomfortable signs of weakening.
The ECB's latest lending survey indicates a fall in demand for loans, especially loans those intended for investment purposes. Balboni said loan growth to business firms seems to have peaked, even in Germany and France.
"While the manufacturing sector is showing signs of bottoming out, a V-shaped recovery seems unlikely and there are still significant risks, from U.S. tariffs to possible trade disruptions following Brexit," said HSBC.
