LONDON – Three months after it emerged from recession, the 17-country eurozone economy is scarcely growing.
The currency union’s economy expanded just 0.1 per cent in the July-September quarter compared with the previous three-month period, the EU statistics agency, Eurostat, said Thursday. That was in line with market expectations but below the previous quarter’s 0.3 per cent increase.
The figure highlights the bloc’s struggles to regain economic health despite signs of life in the rest of the global economy, notably in the United States. European government debt, despite years of government cutbacks and tax increases, remains high, unemployment is at a record, and consumers are hesitant to spend.
As a result, few economists think the recovery in the eurozone can pick up a head of steam and become self-sustaining in the way it has in the U.S. In the third quarter, the U.S. grew at an annualized rate of 2.8 per cent, compared with the eurozone’s annualized rate of about 0.4 per cent.
“The drop in the eurozone growth rate does not mean that the eurozone is heading back into recession but it highlights that the recovery is fragile and, as yet, too slow to lead to a significant fall in unemployment,” said Marie Diron, senior economic adviser to EY, formerly known as Ernst & Young.
The weak economic backdrop is one reason why the European Central Bank cut its main interest rate last week to a record-low 0.25 per cent. The other being low inflation. In the year to October, consumer prices were up only 0.7 per cent, way down on the ECB’s mandate of keeping inflation just below 2 per cent.
Though details were not provided for individual sectors, Thursday’s figures show the recovery slowed in the core economies, such as Germany and France, with mild improvements in countries in the so-called periphery, notably in Spain, which saw its nearly two-year recession end.
Germany’s economic growth slowed to a quarterly rate of 0.3 per cent from 0.7 per cent in the previous three-month period as exports dragged. For an economy that relies heavily on its high-value exporters, such as big car manufacturers like BMW and Daimler, that’s a sign of weak demand among its neighbours and possibly an indication that the recent high value of the euro has taken its toll.
In France, the situation was even more downbeat, with Europe’s second-largest economy posting a quarterly contraction of 0.1 per cent. It’s not in recession, though, as it grew by 0.5 per cent in the previous quarter — a recession is traditionally defined as two consecutive quarters of negative economic growth.
Looking ahead, most economists predict the eurozone will continue to grow, albeit at a sub-par rate. Many of the factors that have hobbled growth, notably the easing in the tensions in the financial markets, will help shore up economies.
“The region is on course to expand at a slightly stronger, though still modest, pace in the fourth quarter,” said Chris Williamson, chief economist at financial information company Markit.