Slow quarterly growth has been reported in the Eurozone with a Q3 GDP of just 0.2% and a year-over-year growth reading of 1.7%.
Flash estimates show that the third quarter GDP for 2018 is up 0.2% in the euro area and up 0.3% in the 28 member states of the EU, with annual growth of 1.7% and 1.9% respectively when measured against Q3 2017, with growth of 2.2% and 2.1% respectively compared against the previous quarter.
- Germany’s 0.2% drop in Q3 GDP undoubtedly weighed down the rest of the Eurozone with Germany being the driving force of the rest of the region’s economy.
- GDP grew 0.4% in Q2 2018 in the euro area and 0.5% in the EU.
- German GDP was dragged down by factors such as Brexit, the trade war, and decline in the auto industry related to a higher standard of emissions testing.
While Germany struggled, the rest of the region fared better with Romania seeing the fastest GDP growth in the zone with an unexpected 1.9% growth spurt in Q3 2018. Latvia was close behind with a 1.8% increase in Q3 while Poland came in at 1.7% for the same time period.
Employment in the Eurozone rose by 0.2% in Q3 with 1.3% annual growth although industrial production underwent a moderate decline. Exports took a hit due to the trade war and consumption was affected by rising Q3 oil prices.
The GDP of the Eurozone stands to potentially impact the value of the dollar, and gold as a result. A continued slowdown in growth or even contraction as seen in Germany could weaken the already-embattled euro against the dollar, boosting the value of the dollar and negatively impacting the price of gold as investors flee their go-to haven of dollar volatility.
It’s too soon to say whether this is happening now, but financial data such as GDP reports emerging from the Eurozone is becoming increasingly more relevant to gold traders.
Bert Colijn, Senior Economist at ING, said:
“The main culprit was Germany, the Eurozone’s stronghold throughout the 2010s, which saw its economy shrink by -0.2% in Q3. Disruptions in the car industry were an important driver of the first negative quarter since 2015 and the slow quarter in the Eurozone, but it seems that the worries about growth are broader than that. Exports are weaker thanks to global problems related to trade wars and emerging markets, and consumption was dampened by the higher oil prices seen in Q3.”