Eurozone grows faster than expected

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Published: Friday 14th November 2014 by The News Editor

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Fears that the 18-country eurozone economy could be heading back into recession have eased with figures showing it grew faster than expected in the third quarter.

It was helped by a better performance from France and confirmation that Greece has come out of one of the developed world’s deepest recessions in living memory.

The Eurostat statistics agency said the eurozone grew 0.2% in the July to September period from the previous quarter, which is equivalent to an annualised rate of around 0.8%.

The growth is relatively weak, but stronger than the 0.1% recorded in the second quarter, which most in the markets had expected to be repeated.

The overall figures did little to suggest the eurozone might reach US-levels of growth any time soon. In the third quarter of this year, the US economy grew by a quarterly rate of 0.9%, according to Eurostat.

“After a false dawn when the eurozone exited recession just over a year ago the fundamentals and overall economic picture have failed to see a substantial improvement,” said Danae Kyriakopoulou, an economist at the Centre for Economic and Business Research.

The eurozone recovery has faced headwinds for years, notably the debt problems afflicting many of the countries that use the euro.

The European Central Bank is under pressure to help out more, especially as inflation is low – at only 0.4% in the year to October, it is far below the 2% rate the ECB looks for.

If prices start falling on a sustained basis – so-called deflation – growth may be choked further as consumers delay purchases in the hope of cheaper bargains down the line and businesses fail to innovate and invest.

“Growth is still nowhere near strong enough to eat into the vast amount of spare capacity in the region and hence diminish the risks of deflation,” said Jonathan Loynes, chief European economist at Capital Economics. “As such, the numbers do nothing to ease the pressure on the ECB and governments to provide more policy stimulus.”

A more detailed look at Friday’s figures shows much of the growth was due to France expanding 0.3% during the quarter. Many had feared Europe’s second-biggest economy could sink back into recession.

France’s performance helped to make up for a muted 0.1% gain in Germany, Europe’s biggest economy, and a 0.1% contraction in Italy.

In perhaps the most momentous development, the figures showed Greece is out of recession for the first time in six years.

Greece posted annual growth of 0.4% in the second quarter, followed by 1.4% in the third. According to Eurostat, Greece slipped into recession in the summer of 2008.

Greece is now among the fastest-growing economies in the eurozone, having expanded in each period this year. In the third quarter, its output swelled by 0.7% quarter-on-quarter.

However, it’s going to take years for Greece to recoup the economic ground lost during the recession. Its economy is now around a quarter smaller than when the recession started.

Published: Friday 14th November 2014 by The News Editor

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