Nov 14, 2014 8:20 AM
France, Greece help eurozone but growth still weak
The Associated Press
LONDON (AP) Fears that the 18-country eurozone could be heading back into recession eased Friday with the news that its growth picked up in the third quarter, thanks to a better performance by France and confirmation Greece has come out of one of the developed world's deepest recessions in living memory.
But the growth rate, of 0.2 percent compared with the previous quarter, is still too weak to make a serious dent in the region's near-record unemployment and few economists think it's going to get much better any time soon.
The figure released by the Eurostat statistics agency is equivalent to an annualized rate of around 0.8 percent. It is stronger than the 0.1 percent tick recorded in the second quarter, which most in the markets had expected to be repeated.
But it does little to suggest the eurozone might reach U.S.-levels of growth anytime soon. In the third quarter of this year, the U.S. economy grew by a quarterly rate of 0.9 percent, 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.
Though the eurozone has dodged recession, weak growth is a problem because the region faces an additional threat deflation.
At only 0.4 percent in the year to October, inflation is far below the 2 percent rate the European Central Bank looks for. As a result, the ECB is under pressure to provide more stimulus.
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 percent during the quarter. Many had feared Europe's second-biggest economy could sink back into recession.
France's outperformance helped to make up for a muted 0.1 percent gain in Germany, Europe's biggest economy. Germany has long been Europe's driver of growth, but its key export and industrial sectors have seen a sharp drop in recent months, partly as a result of uncertainty over Ukraine.
Meanwhile, Italy continued to contract with a 0.1 percent quarterly drop, suggesting the eurozone's third largest economy continues to lag the rest of Europe as it struggles to reform its economy.
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 percent in the second quarter, followed by 1.4 percent 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 percent 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.
No economy in the world was immune from the fallout of the global financial crisis of 2008-9, but few were in as bad a state to deal with it as Greece. Years of profligate government spending had combined with a super-charged credit boom to give the illusion that Greece had won its place among the developed world elite.
The collapse of Lehman Brothers in September 2008 and the ensuing global recession the deepest since World War II tore that impression asunder. The Greek economic miracle that had allowed it to join the first wave of countries in the European Union to use euro notes and coins at the start of 2002 was exposed for what it was a mirage.