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Business News/ News / World/  Euro zone grows faster than expected in Q3 but remains weak
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Euro zone grows faster than expected in Q3 but remains weak

European Union statistics office Eurostat said the 18 countries sharing the euro expanded 0.2% in July-September

Economists expect the European Central Bank to launch further stimulus measures, up to and including a quantitative easing programme buying government bonds. Photo: BloombergPremium
Economists expect the European Central Bank to launch further stimulus measures, up to and including a quantitative easing programme buying government bonds. Photo: Bloomberg

Brussels: The euro zone economy grew more strongly than expected in the third quarter as France beat market forecasts and Germany narrowly avoided a recession, but the bloc remains weak and could need further stimulus.

European Union statistics office Eurostat said the 18 countries sharing the euro expanded 0.2% in July-September compared with the previous three months, when they grew 0.1%.

Year-on-year, euro zone growth was 0.8% in the third quarter, the same as in April-June.

“The euro zone economy is still growing, albeit at snail’s pace," said Nick Kounis, economist at ABN Amro. “A slow recovery rather than a third recession looks to be on the cards."

Eurostat confirmed its earlier estimate that euro zone inflation stood at just 0.4% in October.

Economists said growth was still feeble and would probably slow again towards the end of the year. Most still expected the European Central Bank to launch further stimulus measures, up to and including a quantitative easing programme buying government bonds.

“The recovery remains fragile and subdued," Barclays said in a research note. “In this context, we continue to believe that the ECB will be forced to provide further stimulus...by the end of Q1 2015."

Recent survey data suggest the euro zone will continue to struggle, growing by just 0.1% in the last three months of 2014 and picking up only slowly next year.

“This would be consistent with the deterioration in sentiment indicators from the summer, predominantly in response to rising geopolitical tensions amid continued subdued growth in global trade," said Marco Valli, economist at UniCredit.

Recession dodged

Europe’s biggest economy Germany grew 0.1%, in line with expectations and confounding fears of a second quarter of negative growth.

France, the euro zone’s No.2 economy, grew 0.3%, beating market expectations of a 0.2% gain.

“Activity has somewhat taken off but remains too weak to create the jobs our country needs," French finance minister Michel Sapin said in a statement, reiterating his call for more action to boost growth and jobs in Europe.

France and Italy have been pressing the EU to focus more on measures to foster growth rather than cut debt in order to prevent a slide back into recession. Germany, the country with the current account surplus to spend more, will not budge.

That debate is likely to flare back into life as G20 leaders gather in Brisbane for their annual summit this weekend. US treasury secretary Jack Lew called this week for France and Italy to rein in their deficits more slowly and for Germany and the Netherlands to loosen their fiscal purse strings.

Italy, the euro zone’s third biggest economy, contracted 0.1% and returned to recession, marking the 13th quarter running without any growth..

Spain has already reported a steady 0.5% growth and Greece appears to be turning a corner, emerging from a crippling six-year recession.

Having resumed publishing quarter-on-quarter seasonally adjusted figures for the first time since 2011, the data showed Greece’s economy has in fact been growing since the first quarter of this year.

“The comparison between Italy...and Spain and Greece is telling," said ABN Amro’s Kounis. “Spain and Greece have done more in terms of structural reforms, and have also seen sharp falls in wages. This internal devaluation has restored competitiveness back close to the start of the euro levels.

“In Italy wages have remained extremely elevated," he said. Reuters

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Published: 14 Nov 2014, 11:54 PM IST
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