Eurozone: growth underpinned by consumption but penalised by inventories

Chart of the week

Annualised third-quarter growth came in at 0.9% following 0.7% in the second quarter. Public and private consumption both contributed positively, and residential investment gathered pace.

Non-residential investment increased slightly, but the apparent sharp quarterly slowdown in the ‘other investment’ component requires further analysis. September’s intellectual property component was revised significantly upwards due to the inclusion of Irish data that featured a major transfer of intellectual property during the second quarter. A correspondingly large impact on the second quarter’s foreign trade component could be symptomatic of a tax-driven operation by a large international business group.

More meaningful is the fact that inventory adjustments have detracted from growth for the fourth quarter in a row.

Our analysis

Consumption levels can be expected to remain robust given positive momentum in household incomes amid low unemployment and accelerating wages: the ECB’s indicator of negotiated wages is up 2.6% year-on-year, its fastest rate since 2009.

Periods of inventory adjustment tend to be followed by a sharp rebound in activity. With four consecutive quarters of inventory drawdown behind us, an upturn could be on the cards. However, as the shift has not yet reached the proportions seen in previous recessions (2009 and 2011–2012), the impact of inventory rebuilding is likely to be diminished and the upturn more gradual.

 

The opinion expressed above is dated 12 December 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE


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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée