Eurozone economic growth slows to 0.1%

French car production The eurozone's economy is continuing to improve but progress is slow

The economy of the eurozone grew by just 0.1% in the July-to-September period, down from 0.3% growth in the previous quarter.

The figure marks just the second quarter of a growth phase that replaced an 18-month recession, the longest period of contraction to affect the single currency area.

It shows the eurozone's recovery is extremely tentative.

Europe's Central Bank last week cut interest rates to 0.25% to lift growth.

Analysis

The figures do at least reinforce the story of stability returning to the eurozone. It is also encouraging to see two of the crisis economies, Spain and Portugal, recording some growth.

But that is about the best that can be said of the eurozone data. The region really needs much stronger growth to make a substantial impact on the desperate unemployment problem afflicting many individual economies.

We often focus on Spain and Greece, where the unemployment rate is more than 25%. But there are seven other countries where it is in double figures, including two big ones, France and Italy. Don't expect to hear the champagne corks popping in Brussels or Frankfurt for a long time yet.

Europe's economy is taking far longer to recover than the other advanced regions affected by the credit crisis of 2008.

Although its debt levels are not dissimilar to those in the US and the UK, for many countries they are more politically important.

Weaker countries in the eurozone have been propped up by bailout money, advanced on condition they cut government spending sharply to reduce their debts.

Moves to do this have hit directly at voters, through large-scale job cuts, reduced wages and pensions, higher taxes and widespread changes to public services.

With the resulting higher unemployment and fall in living standards, few economists think there is much there to drive forward a robust recovery.

Growth of 1.1% is being predicted by the European Commission for next year and 1.7% in 2015.

The US, with its own giant government debt, is currently growing at an annualised rate of 2.8%, compared with the eurozone's rate so far this year of about 0.4%.

Activity

Even figures from the region's strongest and most important economies, France and Germany, proved disappointing.

France shrank 0.1% in the third quarter of the year, while German growth slowed to 0.3% from 0.7% in the previous quarter.

Figures from Italy, the third most important country, showed its economy shrank by 0.1%, after a 0.3% contraction in the second quarter.

There were better signs of economic activity from some of the worst-hit countries in southern Europe.

Start Quote

It's not a surprise, it's not an indicator of decline, it's not a recession”

End Quote Pierre Moscovici French Finance Minister

Spain returned to quarter-on-quarter growth for the first time since the first quarter of 2011, albeit with growth of just 0.1%.

Portugal's economy grew by 0.2% in the quarter.

Weak exports

When France's economy grew by 0.5% in the second quarter of the year, it pulled the country out of recession, although economists had not expected that level of growth to be sustained.

Figures from the national statistics agency Insee showed that exports dropped by 1.5% in the third quarter, while business investment fell by 0.6%.

However, France's Finance Minister, Pierre Moscovici, said he still believed the economy would grow by 0.1-0.2% over 2013 as a whole.

"The productive forces are starting up again, production is recovering," Mr Moscovici told French radio.

"We knew the third quarter would mark a pause, it's not a surprise, it's not an indicator of decline, it's not a recession."

Contrast

Germany's statistics office, Destatis, also cited weak exports as a factor holding back growth.

"The positive impulses in the third quarter came exclusively from within Germany," Destatis said.

"Private household and public spending were somewhat higher than in the preceding quarter. And investment in equipment and construction also increased compared with the second quarter.

"By contrast, the trade balance put a brake on GDP growth. While imports continued to rise, exports showed little momentum compared with the preceding quarter," it said.

Economists greeted the news with mixed views.

Chris Williamson from Markit said: "The region's periphery continues to show signs of reviving, and the region is on course to expand at a slightly stronger, though still modest, pace in the fourth quarter.

"The data go a long way to vindicate the ECB's decision to cut interest rates to re-stimulate growth across the single currency area."

But Jonathan Loynes, chief European economist at Capital Economics, was more downbeat: "The near-stagnation of the eurozone economy in the third quarter underlines the fragility of the recovery and the growing dangers of a damaging bout of deflation in the region."

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