Eurozone economic growth eases despite low oil prices; central bank under pressure to do more

LONDON – The eurozone economy lost momentum in the third quarter, official figures showed Friday — a development that puts further pressure on the European Central Bank to stimulate growth more.

Despite a series of tail winds, the 19-country eurozone only grew 0.3 per cent in the July-September period from the previous quarter, according to Eurostat, the EU’s statistics agency.

That was below market expectations for a second straight 0.4 per cent quarterly rise. On an annual basis, the eurozone economy, which comprises some 330 million people from the Atlantic to the eastern Mediterranean, was 1.6 per cent bigger, just ahead of the 1.5 per cent rate recorded in the second quarter.

The eurozone started recovering from its longest-ever recession just over two years ago but growth has never managed to break out of a narrow range, despite favourable conditions such as cheaper oil, a lower euro and weak inflation. The slowdown in emerging markets, notably China, isn’t helping and is one reason why the ECB is expected to do more in December.

“The subdued pace of growth and persistent weak inflation applies further pressure on the ECB and increases the likelihood of the further measures being announced in December,” said Chris Williamson, chief economist at financial information company Markit.

Confidence remains fragile in a region that has spent much of the past seven years dealing with a debt crisis that has, at times, threatened the future of the euro currency itself. Problems aren’t just confined to those countries that suffered most from the financial crisis. Finland was the worst-performing eurozone country in the third quarter, contracting 0.6 per cent.

Here are some things we learned from Friday’s figures.


Consumer Cheer

Though the third-quarter data were preliminary, they indicate that growth was highly dependent on one factor — the consumer.

The German and French statistics agencies credited consumer spending for much of the growth their economies witnessed. Both expanded by 0.3 per cent in the quarter.

Consumer demand has helped compensate for subdued industrial and trade activity, which economists blame on the emerging market slowdown.

A number of factors have helped shore up spending, most notably the halving in oil prices over the past year, which has translated into lower fuel prices. Money saved at the forecourt or on domestic energy bills is being spent elsewhere.

Low inflation has helped, too, especially as wages are rising in many parts of the eurozone.

And though unemployment remains high, notably in Greece and Spain, it’s been falling gradually.


Spain Surges

Spain enjoyed one of the highest growth rates in the eurozone, with a quarterly expansion of 0.8 per cent for a 3.4 per cent year-on-year increase.

The country’s exporters appear to be benefiting from a raft of economic reforms that have kept a lid on wages, boosting competitiveness.

There are questions over how sustainable the recovery is, however. Though the number of jobless has fallen by around half a million over the past year to just below 5 million, about one in five workers is still out of work.

Around half the country’s unemployed are thought to have been out of work for so long they are potentially lacking the requisite skills for jobs that come up.

Spain, the eurozone’s fourth-largest economy, also has to fully deal with the bursting of its property bubble.


Portuguese Pause

Portugal only recently emerged from its bailout with much praise, but the country’s economy isn’t managing to gain much traction.

One of the eurozone’s poorest countries, Portugal saw its economy flat-line in the third quarter following solid increases in the previous three.

The fact the country is effectively without a government following last month’s general election and could be heading to the polls again soon has raised concerns.

Ratings agency Fitch said this week that Portugal’s economic outlook remains fragile and that it “may come under pressure if political instability and policy uncertainty damage confidence.”


Greek Grind

Greece saw its economy shrink again.

The 0.5 per cent fall offset the cumulative gains recorded in the previous two quarters. The decline was unsurprising given tough controls on money flows, including a 60-euro a day limit on ATM withdrawals, since late-June.

It’s a far cry from a year ago, when there was optimism over Greece’s emergence from a long, savage recession that contracted the economy by a quarter.

Since then, the country has faced another crisis over its euro membership, which culminated in the money controls and July’s bailout agreement, Greece’s third.

The bailout requires the left-wing government to make further austerity measures that will hurt growth while reducing debt. But the government will hope that certainty over the country’s euro future will slowly stabilize the economy and allow it to grow once again.