Modest revival continues, but peripheral concerns remain

On the face of it, the news that the euro-zone economy expanded by just 0.3% in Q4 was pretty disappointing. But note that bad weather in Germany might have reduced euro-zone quarterly GDP growth by 0.1 percentage points. This, coupled with the fact that surveys of business sentiment remain high, suggests that there may be a renewed pick-up in growth in Q1. Nonetheless, we still expect any upturn to be reasonably short-lived and for euro-zone GDP growth in 2011 to be rather weaker than the consensus forecast. What’s more, we still think that that most of the peripheral euro-zone economies will fall back into recession this year.