Eurozone GDP increased by +0.2% q/q in Q3 2019, in line with our expectations, but above the consensus. Advanced indicators suggest domestic demand (mainly private consumption and construction) offset negative contributions from the external sector and the manufacturing recession. The fact that companies’ assessment of stocks has stabilized in October is good news, but the unusually high levels continue to suggest a further negative adjustment in manufacturing production by the end of Q1 2020. Indeed, new export orders remain depressed, at their lowest level since 2013, which doesn’t bode well for external demand prospects. Hence, GDP growth should remain low, at +0.2% q/q in Q4 before slowing to +0.1% q/q in Q1 2020 on the back of contracting growth in the UK and the US, but also higher US import tariffs on European car imports as soon as mid-November. The ECB’s additional support in 2020 (two more rate cuts in March and September, coupled with a higher pace of QE as soon as April) and slightly more fiscal spending should help quarterly growth to pick up to an average of +0.4 q/q in H2 2020. We expect Eurozone GDP growth at +1.0% in 2020 (at best).
