France's economic recovery fizzles out, Germany growth slows
France's economic recovery fizzled out in the third quarter of the year and German growth slowed, data showed today, indicating just how far the euro zone has to go to put years of crisis behind it.
The French economy contracted by 0.1pc, snuffing out signs of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1pc and has now shrunk in three of the last four quarters.
German growth slowed to 0.3pc, from 0.7pc in the second quarter, but Europe's largest economy clearly remains in much better shape. Its performance matched forecasts.
The euro zone as a whole emerged from recession in the second quarter and figures due today are forecast to show further tepid growth, of 0.2pc.
France is becoming a focus for concern within the currency bloc. The Bank of France predicts the economy will expand by 0.4pc in the last quarter of the year but the government's labor and pension reforms are widely viewed as too timid.
A report on French competitiveness by the Paris-based Organisation for Economic Cooperation and Development, released overnight, warned that it is falling behind southern European countries that have cut labor costs and become leaner and meaner.
"To reduce the economic lag and lost time, France needs to keep up structural reforms," OECD chief Angel Gurria said.
The report will be hard for the government to ignore because it was commissioned by President Francois Hollande.
German growth was fuelled by domestic demand. Exports faltered, another indication of the malaise gripping the rest of the euro zone.
"Positive impulses came exclusively from inside Germany," said the German Statistics Office.
The European Commission forecasts the currency area will shrink by 0.4pc over 2013 as a whole before growing by a modest 1.1pc in 2014, with its problem children Spain, Italy, Greece and Portugal all expanding next year.
However, with unemployment in the bloc running above 12pc and one in two young people out of work in Greece and Spain, talk of recovery rings hollow.
PERIPHERY PAST THE WORST?
Spain reported last month that it had pulled clear of recession in the third quarter, albeit with quarterly growth of just 0.1pc, putting an end to a recession stretching back to early 2011.
Portugal is still struggling with austerity as part of its bailout plan yet somehow managed to grow by a stunning 1.1pc in the second quarter of the year. Unlike in other embattled euro zone states, unemployment has started to fall there too.
Doubts about an unsteady Italian coalition government's ability to push through economic reforms remain a major concern for the euro zone. But France is climbing the worry list fast.
Both Spain and Portugal have had the outlook on their credit ratings raised to stable in recent days while Standard & Poor's cut France's rating to AA from AA+, still well above its Iberian neighbors but narrowing the gap.
The European Central Bank surprised markets with an interest rate cut last week, although that was more to do with evaporating inflation.
On Wednesday ECB chief economist Peter Praet raised the prospect of the bank starting outright asset purchases if things got too bad, although Bundesbank chief Jens Weidmann took the opposite tack, saying interest rates should not stay at record lows for too long.