Euro Zone Economy Stalls as Germany and France Backtrack

November 14, 2013

By DAVID JOLLY and JACK EWING

The New York Times

PARIS — The euro zone economy marked time in the third quarter of the year, growing just 0.1 percent from the second quarter, a report on Thursday showed, disappointing hopes that a full-fledged recovery was finally taking hold after five years of recession and stagnation.

The economy of the 17-country currency bloc stagnated as output slowed in Germany, Europe’s largest economy, and declined in France, the second largest, Eurostat, the statistical agency of the European Union, reported on Thursday from Luxembourg.

The report was in line with economists’ expectations, and financial markets took the news in stride. European stocks rose about 0.7 percent, and the euro fell about 0.4 percent against the dollar early in the afternoon on the Continent.

Jonathan Loynes, chief economist with Capital Economics in London, said the gross domestic product report was “a clear blow to hopes that the period of market stability seen over the last year or so would translate into a solid and sustained economic recovery.”

He predicted that the euro zone economy would expand by around 0.5 percent next year, “well short of the rates needed to head off the growing dangers of deflation and address the region’s ongoing debt crisis.”

On an annualized basis, Europe’s 0.4 percent growth compares poorly with the United States’ annualized 2.8 percent third-quarter growth and the 1.9 percent Japan reported Thursday. China, the world’s fastest growing major economy, expanded at a robust 7.8 percent rate in the third quarter.

The overall European Union, made up of 28 countries, grew 0.2 percent from the second quarter, and 1 percent on an annualized basis, Eurostat said.

There was some positive news, as Spain and the Netherlands broke out of recession with 0.1 percent quarterly gains, and Britain led major European Union economies with 0.8 percent growth. But Italy continued to limp along with a 0.1 percent quarterly contraction.

In Germany, growth slowed to 0.3 percent, as domestic consumption picked up and helped compensate for flat level of exports. Growth in the three months that ended in September amounted to an annualized rate of 1.2 percent. That was slower than in the second quarter, when the German economy grew at an annualized rate of 2.8 percent, according to the Federal Statistical Office.

The French economy contracted 0.1 percent in the July to September period from the April to June period, when it grew 0.5 percent, as business investment fell further, disappointing hopes for sustained recovery just months after the country broke out of a shallow recession.

The decline, at an annualized rate of about 0.4 percent, came as investment by nonfinancial companies fell by a quarterly 0.6 percent, after falling 0.4 percent in the second quarter, according to Insee, the national statistics institute. Spending by households decelerated, rising just 0.2 percent on a quarterly basis, from a 0.4 percent rise in the second quarter.

While the French figure was disappointing, it was only slightly worse than the consensus forecast of a 0.1 percent expansion. The country’s unemployment rate stands at more than 11 percent, and a report Wednesday showed industrial production turning down sharply in September. Last week, Standard & Poor’s cut the country’s credit rating to AA from AA+, saying it doubted that the government’s current policy course would be able to restore growth.

The growth in Germany was in line with expectations. It came primarily from increased consumer spending as well as domestic investment by German companies, the statistical office said. The pickup in domestic spending should help placate criticism that Germany has not been using its enormous trade surplus to help stimulate its own economy, and by extension the euro zone.

On Wednesday, the European Commission said it would begin an in-depth review of the German economy, and look into whether the country’s trade surplus — 45.9 billion euro, or $61.7 billion, in the second quarter of this year — was so large as to pose a threat to the rest of the bloc.

The German growth figures were preliminary and the Federal Statistical Office, in Wiesbaden, did not give a detailed breakdown of where the increased output was coming from. But it said domestic spending by households grew. In addition, companies spent more on new machinery and equipment as well as on construction projects.

Imports also grew, the statistical office said, without giving exact figures, while exports declined.

“The German economy is already in a longer process of rebalancing,” Carsten Brzeski, an analyst at ING Bank, said in a note to clients. “Looking ahead, there is little reason to doubt the stability of the German economy.”

The Greek economy, which has been pummeled by the sovereign debt crisis and the austerity measures forced upon the government by its creditors, contracted by 3 percent in the third quarter from the same period a year earlier, Elstat, the national statistical agency, said Thursday. The country is experiencing depression-level unemployment of more than 27 percent and nationwide social pain. Even so, the contraction was slightly better than the 3.1 percent decline economists surveyed by Reuters had expected and the smallest such contraction since a 2.8 percent decline in the second quarter of 2010.

David Jolly reported from Paris, and Jack Ewing from Frankfurt.