Strong 4th Quarter 06 GDP Figures in the Eurozone
4th quarter figures from the Eurozone are out today and by and large I would argue that they have come out as expected albeit with a few surprises. Generally, I am a bit surprised on the upside. In the 3th quarter the entire Eurozone grew 0.5% from the 2nd quarter and the preliminary figure for the 4th quarter reports a healthy clip of 0.9% on a q-o-q basis. This surprises me as I would have expected somewhere between 0.5% and 0.7% but we also need to realize that France recorded 0% growth on a q-o-q basis in the 3th quarter and since this was clearly not going to repeat itself in the 4th quarter I think that a notable part of the explanation for the impressive relative q-o-q growth rate is to be found here. In Germany, growth accelarated slightly in the 4th quarter at 0.9% from 0.8% in the 3rd. Exports are still accounting for the lion's share but also consumer spending rose most likely as a result of forward pushing of purchasing to avoid the VAT hike. In Italy, growth also somewhat more surprisingly raced ahead marking a 1.1% q-o-q growth rate in the 4th quarter. Especially, intra European trade dynamics are cited to have been contributed markedly to the impressive growth rates.
Of course, today's positive numbers make it almost certain that the ECB is going to push forward with a raise in March, in fact it was probably certain anyway. However, as I have argued several times here at AS 2007 is very likely to be a very different year entirely and the ECB should be weary to raise to far into 2007 on the back of 4th quarter figures in 2006. On the other hand the Eurozone is clearly going into 2007 with more momentum that I had expected and voiced here at Alpha.Sources so this is not a clear cut case. My main point remains though. Fiscal tightening in Germany and Italy as well as slowing USA still looming should provide plenty of break on Eurozone wide growth for the ECB to consider its course.