Euro zone GDP breakdown shows overall weakness

The preliminary estimate of euro zone Q4 GDP confirmed that the euro area economy contracted by 0.3% Q/Q in the final three months of 2011. This outcome was in line with expectations. More interesting is the (first) release of the details, which show that weakness was broad-based. Household spending contracted by 0.4% Q/Q, twice as much as expected and also gross fixed capital formation was weaker than expected shrinking by 0.7% Q/Q, compared to a forecast of -0.4% Q/Q. Government consumption fell by 0.2% Q/Q. Both exports (-0.4% Q/Q) and imports (- 1.2% Q/Q) dropped in the final quarter of 2011, but as the decline in imports was considerably bigger than the fall in exports, net-exports contributed to growth. Finally also change in inventories was a drag on growth in the fourth quarter. While the headline figure was somewhat stronger that initially expected, the details are really miserable. Broad-based weakness in all components was partly offset by a positive contribution from net exports as imports dropped more than exports. Recently, the economic climate has improved somewhat but we doubt whether the euro zone will be able to avoid another contraction in the first quarter of 2012.