Data released this week confirmed that the euro-zone economy finished 2017 on a strong footing. But the composition of growth shifted markedly in the second half of last year, with net trade making a large positive contribution to GDP while domestic demand growth slowed sharply. As the boost from trade is set to fade, overall growth will slow if consumer spending and investment growth fail to pick back up.
Encouragingly, temporary factors appear to be behind much of the slowdown in consumer spending growth in Q4. Indeed, unseasonably warm weather throughout much of the region weighed on energy consumption and clothing sales. And with business confidence strong and housing markets recovering, it seems likely that investment growth will gather pace in the coming quarters.
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