Resilient German, French growth fails to dispel gloom
Germany and France continued to shore up the eurozone with surprisingly strong growth in the third quarter, data showed on Tuesday, but the global economic gloom is darkening fast, analysts cautioned.
The debt-laden euro area as a whole logged growth of 0.2 percent between July and September, thanks largely to a pick-up in consumer spending in Germany, the Eurostat data agency calculated in a preliminary estimate.
But while Germany and France clocked up growth of 0.5 percent and 0.4 percent respectively, analysts and think-tanks are convinced that will be the last of the good news for the eurozone for quite some time.
They said the 17-nation single currency area could already be slipping into recession, noting that the stiff austerity measured aimed at tackling debt crisis problems in many countries -- Italy, Spain after Greece, Ireland and Portugal and perhaps now even France -- are undercutting growth.
Tensions on the bond markets mirrored investor concerns, with borrowing costs of some of the majors -- France, Italy and Spain, the bloc's second-, third- and fourth-largest economies -- rising on doubts about the ability of governments to get to the root of the eurozone's woes and reform their finances.
The gap between borrowing rates for Germany compared with France and Spain widened to new records Tuesday, reflecting the acute tensions at the heart of the eurozone where the debilitating debt crisis is casting a pall over the overall growth outlook.
On Monday, the Organisation for Economic Co-operation and Development in Paris warned of increasing signs of a slowdown in most OECD and in major non-member countries.
That came just days after the EU Commission in Brussels warned that Europe could tip back into recession over the course of 2012 due to a "vicious circle" of government debt, vulnerable banks and collapsed spending.
Similarly worrying was an analysis of China's financial system by the International Monetary Fund, which warned Tuesday that the world's second-largest economy is at risk from bad loans, uncontrolled private lending and sharp falls in property prices.
The fractional 0.2-percent eurozone growth in the third quarter "may well be as good as it gets in the near-term at least, as contraction looks highly possible in the fourth quarter and we suspect also the first quarter of 2012," said London-based IHS Global Insight analyst Howard Archer.
Indeed, "we expect to see GDP contract by around 0.25 percent quarter-on-quarter in both the fourth quarter of 2011 and the first quarter of 2012," he said.
He tipped Gross Domestic Product in 2012 to be "essentially only flat over the year as a whole."
Tom Rogers, senior economic adviser to the Ernst & Young Eurozone Forecast (EEF) said the latest data "corroborate our view that the eurozone is slipping back into recession and needs decisive policy action to restore confidence and prevent a serious downturn in 2012."
Despite the superficially strong data for Germany and France, "the clear direction of travel for the fourth quarter and into 2012 is for falling output," he said.
For Commerzbank economist Christoph Weil, "the uncertainty caused by the sovereign debt crisis is lying like mildew upon the eurozone economy. Plunging sentiment indicators for months suggest that the eurozone will slide into recession at the turn of the year."
In the latest confidence barometer, the ZEW index of investor expectations in Germany fell to its lowest level for three years in November.
Jonathan Loynes, chief European economist at Capital Economics in London said the eurozone's "modest expansion in the third quarter could be the last for some time. With more timely indicators already very weak and the debt crisis set to deepen, the risks of another very sharp recession in the region are growing rapidly."
Chris Williamson, chief economist with London-based Markit, said Italy "looks set to be the first of the four largest euro nations to slide back into recession."
At the same time, "the combination of weaker global demand, austerity measures and uncertainty caused by the sovereign debt crisis is also likely to cause downturns in both Germany and France," Williamson warned.
He said the outlook "largely rests in the hands of the politicians (and) ... swift action is needed to address the debt crisis and boost business and household confidence (if) ... a serious double-dip recession is to be avoided."
© 2011 AFP