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Germany, France eke out Q3 growth, worse times to come

Italy shrinks less than forecast

Image Credit: EPA
An employee works on a wind rotor blade at the rotor blade factory of company Nordex in Rostock, Germany, November 2, 2012.
Gulf News

Berlin/ Paris: Germany and France each grew modestly by 0.2 per cent in the third quarter but with the Eurozone’s debt-laden members suffering deeply, the currency bloc as a whole is likely to have slid into recession.

The quarterly performance Europe’s dominant economy reported on Thursday was in line with forecasts and analysts said it could not defy gravity for much longer. The French economy surprised on the upside, having been expected to post no growth at all after a revised 0.1 per cent fall in the second quarter.

“That was the last good number from Germany for the time being. The German economy will probably shrink somewhat in the fourth quarter given that orders have been falling for the last year and the business climate ... has caved in,” said Joerg Kraemer, chief economist at Commerzbank.

“That is due to the uncertainty caused by the Eurozone crisis. I don’t expect the German economy to return to decent growth rates until the middle of next year.”

Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011, though healthy consumer appetite and a robust jobs market should help to avoid a recession, defined as two quarters of contraction.

Where Germany goes, France is likely to follow.

“We expect the French economy to contract again in the final quarter of this year,” said Joost Beaumont of ABN Amro.

EU statistics office Eurostat is predicted to say that the bloc’s output shrank 0.2 per cent in the third quarter, as it did in the second. Business surveys point to a deeper decline.

That would push the 9.4 trillion euro (Dh44.05 trillionm, $12 trillion) economy, which generates a fifth of global output, officially into recession. Italy and Spain have been contracting for months and Greece -- where the euro debt crisis began -- is suffering an outright depression.

The figures will be released at 1000 GMT.

Hopes for a recovery next year are also fading, with the European Commission saying the economy will flatline in 2013.

However, with France beating expectations and Italy, the Eurozone’s third largest economy, shrinking by just 0.2 per cent over the past three months -- less than the 0.5 per cent forecast -- it is possible the Eurozone just avoids recession again.

There have been fledgling signs the Italian economy is improving. Consumer confidence has risen slightly and the pace at which industrial output has fallen is slowing.

Nonetheless, the country’s “acquired growth” at the end of the third quarter stood at -2.0 per cent, meaning that if GDP is flat in the final three months of the year, the economy will have shrunk by two per cent over the year as a whole.

Spain, which has kept the Eurozone on tenterhooks over a decision on whether or not to seek help from the Eurozone rescue fund, is also in recession. It contracted 0.3 per cent in the third quarter.

The Dutch economy shrank much more sharply than expected, by 1.1 per cent on a quarterly basis, and Austria’s economy contracted 0.1 per cent.

Figures out earlier this week showed the Portuguese economy shrank 0.8 per cent quarter-on-quarter while Greece tumbled further, casting doubt on whether Athens and its lenders can come up with a credible plan to put its finances back on track.

With little prospect of better times ahead, the threat of a public backlash cannot be dismissed.

Millions of workers went on strike across Europe on Wednesday to protest the government spending cuts they say are driving the region into a deeper malaise but which Germany and the Commission say are crucial to healing the wounds of a decade-long, credit-fuelled boom.

But the European Central Bank’s pledge to buy Eurozone government bonds in potentially unlimited amounts, should a country first seek help from the rescue fund, has diminished any threat of a Eurozone calamity.