Europe stagnates in fourth quarter

1.609280-666617925 — Jean-Claude Trichet, president of the European Central Bank. While unemployment is at an 11-year high, economic confidence improved in March. Image Credit: Bloomberg News

Luxembourg: Europe's economy unexpectedly stagnated in the fourth quarter as companies cut spending more than previously estimated.

Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4 per cent, the EU's statistics office in Luxembourg said yesterday. It had previously reported a fourth-quarter expansion of 0.1 per cent. Corporate investment dropped 1.3 per cent instead of 0.8 per cent estimated earlier.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment and offsets concerns that Greece's fiscal crisis will hurt the euro region.

While unemployment is at an 11-year high, economic confidence improved in March and the region's services and manufacturing growth accelerated to the fastest pace since August 2007.

Relying on trade

Europe will see "a slow and bumpy recovery," Colin Ellis, an economist at Daiwa Capital Markets Europe in London said. "The euro area is set to rely disproportionally on trade this year and next."

Euro-area exports rose 1.9 per cent in the fourth quarter from the previous three months, more than the 1.7 per cent gain estimated earlier, yesterday's report showed. Household consumption remained unchanged in the latest quarter, and government spending declined 0.1 per cent after rising 0.7 per cent in the previous three months.

The euro was little changed after the GDP release, trading at $1.3384 at 11.46am in Frankfurt, down 0.1 per cent on the day. The yield on the German 10-year benchmark bond dropped 0.2 basis points to 3.12 per cent. From a year earlier, euro-area GDP declined a seasonally adjusted 2.2 per cent in the fourth quarter instead of a previously reported 2.1 per cent, the statistics office said. For the full year, the economy contracted 4.1 per cent after expanding 0.6 per cent in 2008.

Germany, France and Italy, the euro area's three largest economies, probably expanded 0.9 per cent in the first three months of 2010 and may grow 1.9 per cent in the current quarter, the Organisation for Economic Cooperation and Development said.