What to watch for in the eurozone's third quarter economic growth report

LONDON – The eurozone economy can’t achieve lift-off, it seems, despite a number of tail-winds.

Official figures Friday are expected to show the single currency bloc, which comprises 330 million people across 19 countries, is still growing only at a subdued rate. The consensus is it expanded by a quarterly rate of 0.4 per cent in the July-September period, unchanged from the previous quarter.

In fact, growth has been around this level for over a year.

Any growth is welcome for a region that’s spent seven years firefighting financial crises. But to really bring down high unemployment, the economy needs more. That’s partly why the European Central Bank is expected to expand its stimulus in December.

In a region spreading from the Atlantic to the eastern Mediterranean, the economic outlook varies between countries.

Here are the key points of interest in Friday’s figures.


Eurozone Consumers: They’re Back

For years, eurozone consumers have been afraid to spend amid high unemployment — particularly in Greece and Spain — and government cutbacks.

This year, many consumers have gained confidence. Retail sales rose a healthy 0.6 per cent in the third quarter. “Unlike 2011, the euro area domestic economy appears to be in much better shape,” said James Nixon, chief European economist at Oxford Economics.

The reasons are clear.

Oil prices have fallen sharply in the past year, lowering fuel costs and giving people more money to spend elsewhere.

Another reason is inflation is low and even negative in some countries.

Though ECB policymakers are concerned low inflation may eventually prompt consumers to delay spending in the expectation of lower prices, so far it’s a boon. Doubly so as wages are increasing in many parts of the eurozone, notably in Germany. And unemployment, though high at 10.8 per cent, is edging down.


Germany Lagging?

The pick-up in consumer spending couldn’t have come at a better time as it compensates for a downturn in industrial activity, particularly in Germany.

Figures released Thursday show that eurozone industrial production fell 0.3 per cent during September, meaning the sector made virtually no contribution to third-quarter growth.

The slowdown in global trade, largely due to China, is hurting Germany’s export powerhouses in particular.

Germany’s manufacturing orders plunged by their biggest rate in four years in the third quarter. And that before any potential repercussions from Volkswagen’s emissions-cheating scandal.

Any benefit to exporters from the sharp fall in the value of the euro since last year appears to have run out, so many German executives will be hoping the currency makes another break lower.


France On The Up?

Upbeat industrial production figures in France raised expectations that Europe’s third-largest economy may have grown faster than Germany in the third quarter.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, says it’s possible France may post growth of 0.5 per cent.

That would be a big improvement on the flat second quarter, though most economists remain skeptical over France, which has been a laggard in recent years.

Its government remains under pressure to speed up economic reforms to get unemployment down from a high 10.7 per cent.

So far, the recovery has been largely jobless.

Vistesen said one reason could be that employers “likely remain scarred by two severe recessions since 2008, and are more cautious than normal in committing to new hires.”


Greece: A Bit Unclear

Greece may account for only 2 per cent of the eurozone economy but its performance has been a key interest in the past six years as a recession shrank its national economy by a quarter.

This quarter, no one really knows what to expect.

Even though the country started the three-month period in the grip of a crisis that had it on the verge of leaving the euro, it appears to have coped — recent industrial production and retail sales figures have been relatively positive.

At face value, these figures point to a third straight quarter of economic growth, according to Jonathan Loynes at Capital Economics. That would be surprising since the Greek economy has had to operate under strict limits on money withdrawals during the quarter — a paltry 60 euros per person a day.

Loynes said the “puzzling robustness” of recent indicators contrasts with the “much gloomier message” from business surveys.

Watch this space.