The euro area economy expanded 0.3% q/q in Q4 up from 0.2% q/q in Q3. This was a bit below our expectation (0.4%) but above consensus expectations (0.2%).
The sub-component details have not been released yet, but we believe the main driver behind the higher growth was private consumption. Retail sales increased each month in Q4, boosted by the lower oil price, lower unemployment and a stabilisation in consumer confidence.
The latest progress in private consumption implies that consumers are not postponing spending due to deflation. Instead, the fall in the oil price has increased their purchasing power.
Looking ahead, the economy is supported by a number of fading headwinds particularly due to the monetary easing from the ECB. The weaker currency benefits exporters as it improves price competitiveness and we expect it to boost GDP growth by around 0.7% in 2015. Additionally, credit to the private sector is improving and lending rates are declining, which supports private consumption and investment.
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