Eurozone economy stalls in Q3 with 0.2pc growth
Ireland bucks trend with sharp rise in consumer confidence despite crisis
THE eurozone economy stagnated in the third quarter despite reasonable growth in Germany, France and Ireland, presenting new evidence that the combined economy of the 17 members is heading back into recession.
The eurozone's economy grew just 0.2pc in the third quarter. Growth in the three months from July to September was on a par with that in the second quarter, but the outlook for the last period of the year is dim, with the region's deepening debt crisis weighing on sentiment and consumer confidence.
Ireland, as usual, is bucking the trend with consumer confidence rising despite the gathering storm clouds across the continent.
"Despite the superficially strong showing for Germany (0.5pc) and France (0.4pc), the clear direction of travel for the fourth quarter and into 2012 is for falling output," said Marie Diron, an economist at Ernst & Young. "Even output in Germany is starting to contract."
Underlining that view, Germany's ZEW institute reported that its economic sentiment index fell sharply from October's figure. It said political and economic problems in Greece and Italy had increased uncertainty about the future.
Only the Irish appear unconcerned about the crisis with the KBC Ireland/ESRI Consumer Sentiment Index jumping to 63.7 in October from 53.3 in September. It was 15 points above the reading for October 2010. Finance Minister Michael Noonan shares that confidence, telling the Dail yesterday that "Ireland is returning to significant growth rates".
Elsewhere in Europe, worries are mounting that the debt crisis will force many countries to adopt tough austerity measures in order to stop the bond market driving them towards default. Economists say there is no visible growth strategy in place to counter those cuts.
"The risks of a technical recession have increased and we expect the economy in Germany to shrink at least in one quarter, most likely in the first quarter of next year," said ING economist Carsten Brzeski.
France has also rushed through belt-tightening measures, announcing €65bn of tax hikes and budget cuts over five years earlier this month, as President Nicolas Sarkozy seeks to protect the country's top-notch credit rating without killing his chances of re-election in six months' time.
In France, labour minister Xavier Bertrand said the government will cut. "Positive growth means tax revenue, but there isn't enough growth so we have to manage our budget like you do at home, or like a company chief," he said after the GDP data were released. "If there's not enough money coming in then there must be less money coming out."
Spanish figures released late last week showed the eurozone's fourth largest economy ground to a halt in the third quarter, pushing it close to recession.
The outlook is even bleaker, with the debt crisis set to curb activity further and the likely winners of Sunday's general election promising to tighten the fiscal screws further.
Neighbouring Portugal, recipient of an EU/IMF bailout, is already in recession and its slump deepened in the third quarter.
Its economy shrank by 0.4pc over the three months, data showed this week.