Improvement in eurozone as Germany, France skirt recession

14th November 2014, Comments 0 comments

The economic clouds over Europe appeared to lift slightly in the third quarter as its two biggest economies both narrowly escaped a new recession, official data showed on Friday.

Overall the eurozone grew by just 0.

2 percent, a still worryingly low figure, but a slight acceleration from the standstill reported originally for the previous quarter.

The data from the EU's Eurostat agency was an improvement, but will do little to dispel fears that problems in Europe, which include historically low inflation, could spread to the world economy.

"The eurozone is having an almighty struggle to develop even modest growth momentum," said Howard Archer, chief European economist for IHS Global Insight.

"Heightened geopolitical tensions, particularly related to Russia and Ukraine, have weighed down on confidence and investment across the eurozone, reinforcing ongoing challenging conditions in many countries," he said.

- Turnaround in Germany, France -In Germany, Europe's economic powerhouse, gross domestic product (GDP) expanded by 0.

1 percent in the period from July to September, after shrinking by 0.

1 percent in the preceding three months.

And in Paris, a preliminary estimate showed the French economy grew by 0.

3 percent in the third quarter, following a contraction of 0.

1 percent in the second quarter.

Since recession is technically defined as two consecutive quarters of falling GDP, both France and Germany avoided a new recession.

In Germany's case, positive impulses came primarily from private households, which ramped up their spending strongly, the official Destatis agency said.

In addition, foreign trade also provided a support for the economy, with exports rising more strongly than imports, it said.

- 'Growth too weak' -In Paris, France's Finance Minister Michel Sapin said the French data confirmed the government's forecast of 0.

4 percent growth for the full year.

"Economic activity has picked up slightly but remains too weak to ensure the job creation our country needs," Sapin said.

With growth in both countries still very modest, however, analysts were cautious about the outlook for the eurozone.

Berenberg Bank economist Christian Schulz said that the usually strong Germany "remained a key drag" with the crisis in Ukraine affecting it "and other central European countries more than Western European countries".

"Once this and other external risks fade, Germany will resume its economic leadership role," he said.

Italy, the third biggest economy in the currency bloc, remained stuck in recession in the third quarter, contracting 0.

1 percent after sliding 0.

2 percent in the previous three-month period.

"Overall, the fact that the eurozone managed to expand at all provides a small amount of relief," said Jonathan Loynes, chief European economist from Capital Economics.

- 'Still on track' -The picture for bailed-out eurozone countries was mixed, with the end of recession confirmed in Greece, which grew by 0.

7 percent in the third quarter.

Data was not yet available for Ireland, but in the second quarter it was set to roar ahead with 6.

5 percent annual growth, way above the 0.

8 percent estimated for the eurozone.

Portugal disappointed with just 0.

2 percent quarterly growth even though a wave of structural reforms was hoped to have delivered a much clearer recovery.

Cyprus, the last country to receive an EU-IMF bailout, continued a painful recession with a 0.

4 percent contraction.

The European Commission said "the recovery was on track but still too slow and fragile" and urged countries to push through reforms.

The EU's executive arm is also looking to a mooted 300 billion euro ($374 billion) investment plan to boost growth, a key plank of Commission head Jean-Claude Juncker's incoming team, which took office on November 1.

Loynes of Capital Economics warned growth was "still nowhere near strong enough" to reinvigorate the economy and "diminish the risks of deflation".

Those risks remained very much alive, with Eurostat also confirming that inflation in the eurozone stood at a still low 0.

4 percent in October.


© 2014 AFP

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