Eurozone growth sluggish as Germany avoids recession

Steel pipe manufacturing in Germany Image copyright AP

The German economy has narrowly avoided recession, growing by 0.1% in the third quarter of the year, figures show.

With the economy having shrunk 0.1% in the previous quarter, another negative figure would have implied a recession.

Germany's growth, together with stronger-than-expected expansion in France of 0.3%, helped the eurozone as a whole to grow by 0.2% in the quarter.

The figures from Eurostat also showed Greece's economy emerged from recession in the first quarter of the year.

Greece's economy grew by 0.8% in the first three months of the year, Eurostat said, followed by growth of 0.3% in the second quarter and 0.7% in the third.

However, the size of Greece's economy is still about a quarter below the peak it reached before the severe recession and debt crisis triggered by the global financial crash.

The eurozone figures also show Italy returned to recession after its economy contracted 0.1% in the third quarter - the 13th quarter in a row that it has failed to grow.

Outlook 'heavily clouded'

The eurozone figure marks an improvement from the 0.1% growth seen in the second quarter of the year.

"On their own, these growth figures are nothing to write home about, but in the context of the negative news emerging from the eurozone in recent months, the simple fact that growth isn't slowing will reassure investors," said Nancy Curtin, chief investment officer of Close Brothers Asset Management.

"But let's be clear, the outlook for the eurozone is still heavily clouded. Inflation remains in the doldrums, employment across the bloc is not improving, and manufacturing is in a state of near stagnation."

The anaemic growth in the eurozone has led the European Central Bank (ECB) to cut its benchmark interest rate to a record low of 0.05% and begin an asset purchase programme in an attempt to stimulate the economy.

However, the ECB has come under pressure to do more, and to carry out a programme of quantitative easing along the lines of that seen in the US, UK and Japan.

Last week, after the latest ECB meeting, the bank's president, Mario Draghi, said it stood ready to give the eurozone further economic stimulus "should it become necessary".

Analysis: Andrew Walker, BBC economics correspondent

So it's sunlit uplands for Greece? Not quite, but it is a significant moment. In fact it turns out that the significant moment was the first quarter of the year. That was when the Greek economy started to grow again.

It has now managed three consecutive quarters of expansion and in the most recent one it was the fastest growing economy in the eurozone. But of course that fact has to be set against a truly dismal background. The cumulative decline in economic activity is probably more than 25%. I say "probably" because there was a period when the Greek statistical agency stopped publishing the data we need to make the calculation.

At the growth rate achieved in the third quarter, it would take 10 years, perhaps more, to get back to pre-crisis levels of activity. And it doesn't help Greece that the rest of the eurozone is struggling to generate any economic momentum of its own.

'Positive surprise'

Germany's statistics office said consumers had increased spending strongly during the third quarter period, and that exports had also risen.

Christian Schulz, senior eurozone economist at Berenberg Bank, told the BBC that confidence among German businesses was low, in large part because of worries about the Ukraine crisis.

The German economy, for so long the eurozone's driving force, had been "a drag" in recent months, he said.

Earlier this week, a panel of advisers to the German government forecast growth of 1% next year following a 1.2% expansion in 2014.

It pointed to "geopolitical risks" such as the Ukraine crisis, but also criticised government policies such as plans to introduce a minimum wage next year.

Carsten Brzeski, an economist at ING-DiBa, said that "the German economy is nowhere near any abyss,", but said recent poor growth signals that it "could use a new reform impulse rather sooner than later".

In France, President Francois Hollande welcomed the country's latest growth data as a sign that it could reach its new target of 0.4% growth for the whole year.

However, that is less than half an initial estimate earlier this year.

Nevertheless, Christian Shulz at Berenberg Bank said the French growth came as a "positive surprise".

The 0.3% growth is the highest since the second quarter of 2013, and was slightly above the 0.2% growth forecast that many analysts had predicted.

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