Europe Recovery Wanes as Germany Slows, France ContractsStefan Riecher
The euro area’s recovery came close to a halt in the third quarter as German growth slowed, France’s economy unexpectedly shrank and Italy extended its record-long recession.
Gross domestic product in the 17-nation euro area rose 0.1 percent in the three months through September, cooling from a 0.3 percent expansion in the second quarter, the European Union’s statistics office in Luxembourg said today. That’s in line with the median forecast in a Bloomberg News survey of 41 economists. Growth in Germany, the region’s largest economy, eased to 0.3 percent from 0.7 percent.
The slowdown comes as the currency bloc struggles with the legacy of a debt crisis now in its fifth year and just after it emerged from its longest-ever recession in the second quarter. Unemployment stands at a record 12.2 percent and inflation slowed to the lowest level in four years in October, leading the European Central Bank to cut its benchmark rate to a record low last week.
“The bleak GDP estimate shows just how fragile and hesitant the eurozone’s recovery is -- so much so that it’s questionable whether current economic conditions even qualify as a recovery,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “While the slowdown extends to Germany, it’s the dire state of the French and Italian economies that looms large.”
The euro weakened against the dollar today and was down 0.4 percent at $1.3435 as of 10:55 a.m. London time.
The growth in Germany was in line with the median forecast in a Bloomberg survey. The French and Italian economies shrank 0.1 percent, with the latter suffering a ninth straight quarterly slump, extending its longest stretch of decreasing GDP since the creation of the euro. Spanish GDP rose 0.1 percent and Portugal’s increased 0.2 percent.
With the second and third-biggest economies contracting, Germany continues to drive growth in the euro area, with help from its neighbors in northern Europe. Data today showed Austrian GDP increased 0.2 percent, while the Netherlands exited recession with a 0.1 percent gain.
As the euro-area economy struggles to gather strength and inflation cools, the European Central Bank cut its benchmark interest rate to a record-low 0.25 percent last week. President Mario Draghi repeated his pledge that support from monetary policy will remain in place for as long as necessary.
“We are seeing a painfully slow recovery,” said Frederik Ducrozet, senior euro-area economist at Credit Agricole CIB in Paris. “I wouldn’t expect any positive surprises for next year either. The good news is that the economy will grow, but definitely too slowly to significantly reduce unemployment.”
The euro-region jobless rate of 24.1 percent among those under 25 years caused European leaders meeting in Paris this week to boost funds to tackle the issue.
“Youth unemployment is the true nightmare of our country,” Italian Prime Minister Enrico Letta said on Oct. 21 in Rome, referring to more than 40 percent of those aged between 15 and 24 searching for work in Italy.
Adidas AG, the world’s second-biggest maker of sporting goods, this month reported a drop in third-quarter profit and a decline in sales in Western Europe. It said this was partly due to “ongoing macroeconomic challenges in the region.”
As the recovery weakens, inflation in the euro zone slowed to 0.7 percent in October, the lowest in four years. Draghi said last week it may remain low for a “prolonged period.” He will present new economic forecasts in December.
In a prelude to that, the ECB today released its quarterly survey of professional forecasters. Economists cut their outlook for inflation in 2015 to 1.6 percent from 1.8 percent, suggesting an undershoot of the institution’s mandate for price stability of just below 2 percent.
“The recovery certainly does not look strong enough to get inflation back close to the ECB’s price stability goal in the foreseeable future,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The weak growth figures therefore keep further ECB action very much on the table.”