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Europe's Economic Anemia

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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The euro region dodged recession in the third quarter, with gross domestic product expanding by 0.2 percent compared with the previous three months, and at an annual pace of 0.8 percent, according to figures released today by Eurostat. That's no excuse for the bloc's leaders to relax their efforts to rejuvenate the economy, avert deflation and get more workers off the unemployment roster.

Indeed, today's numbers confirm that the euro zone has already experienced the kind of "lost decade" that U.S. Treasury Secretary Jack Lew warned of earlier this week. In the past 10 years, the region has made almost no contribution to global growth, as this chart shows:

In the same period, the U.S. economy posted an average quarterly expansion of 1.6 percent. The euro area's average 0.2 percent contribution to the world economy in a decade isn't much better than the 0.1 percent Japan managed.

Parts of the euro zone are still in recession, today's figures show, and the picture in Italy remains unremittingly gloomy. The economy there hasn't had a positive quarter since the middle of 2011, and in the third quarter of this year it shrank by 0.1 percent after contracting by 0.2 percent in the second:

The new data also show that the annual pace of inflation for euro members was 0.4 percent in October, leaving consumer prices far below the European Central Bank's 2 percent target. A Bloomberg Global Poll of international investors published today showed that 89 percent of those polled see disinflation or deflation threatening the bloc. Moreover, the poll showed the global economic outlook is deteriorating, according to 38 percent of respondents. That's the most since September 2012, and double the number in a July survey.

Lew is probably willing to put up with the dollar's gain of almost 6 percent this year against its currency peers, provided other countries capitalize on the boost it should give their exports. If Europe fails to deliver, the U.S. might well decide its share of the global burden is unfair and take action to weaken the dollar. The last thing the global economy needs is a currency war.

Europe's anemia will be a major focus of the Group of 20's meeting in Brisbane, Australia, this weekend. Criticism that the bloc's leaders need looser fiscal policies would be well-deserved; the rest of the world needs the euro zone firing on more cylinders. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net