The eurozone is Ireland’s most important trading partner, taking one-third of our total exports.
And the region’s GDP figures for the final quarter of last year which are due to be published on Thursday are not expected to make pretty reading.
Quarterly growth in the eurozone slipped to just 0.2% in the third quarter.
This is down from a growth rate of 0.4% in the first two quarters of 2018, and the quarterly rate of 0.7% posted right through 2017.
The detailed data show that both consumer spending and investment have lost momentum since the start of last year.
The most noticeable development, though, has been a sharp weakening in export growth: it slowed to just 2.4% year-on-year in the third quarter of 2018, down from over 6% in the final quarter of 2017.
Survey data suggest that economic activity may have lost further momentum in the fourth quarter of 2018.
The Markit composite Purchasing Managers’ Index (a reliable measure of economic activity) continued to decline in the closing months of the year, with both the manufacturing and service sectors losing ground.
Flash Eurozone shows growth close to stalling, with headline index at five-and-a-half-year low in Jan (50.7 vs. 51.1 prev). Both services and manufacturing sector growth ease further, while composite exports declined at steeper rate. More: https://t.co/AKG5wGXICm pic.twitter.com/PIFBKm8KPm— IHS Markit PMI™ (@IHSMarkitPMI) January 24, 2019
Similarly, the EC Economic Sentiment index also continued to weaken, falling to a two-year low in December.
Meantime, the available hard data for the quarter have been somewhat mixed: Retail sales rose by 0.6% in both October and November, indicative of a pick-up in consumer spending.
However, on the output side of the economy, recent industrial production figures have been very disappointing.
Output in October and November was 1.6% lower than its level in the third quarter. Worryingly, the slowdown has been broad-based across industry.
Overall, it would seem that GDP rose by at best, another uninspiring 0.2% in the fourth quarter.
Meanwhile, the limited survey data available for January suggest the eurozone economy weakened further.
The flash reading of the composite PMI was down again on December’s disappointing number. The index fell to a near six-year low.
The French index was particularly weak, declining well into recession territory.
Meanwhile, the key German Ifo business climate index also declined again in January, hitting a three-year low there.
Overall, the eurozone has entered a period of much weaker economic growth.
External demand for European goods, which had helped to boost growth in the past couple of years, has softened as the outlook for the global economy deteriorates.
On this note, continuing US-China trade tensions and concerns about the possibility of a no-deal hard Brexit are also a worry.
Country-specific factors such as the stricter car emission standards in Germany, street protests in France, and higher borrowing costs and increased uncertainty in Italy are also all weighing on activity.
The latest IMF forecast is for GDP growth of 1.6% in the eurozone in 2019, close to the ECB forecast of 1.7%.
Our expectation is growth will be closer to 1% this year, with the economy not far from entering recession.
We still expect, though, that falling inflation, continuing very low interest rates and an easing of some current headwinds to growth will eventually see activity pick up again as the year progresses.
Oliver Mangan is chief economist at AIB