Although third quarter eurozone growth of 0.2% surpassed general expectations, the numbers are otherwise essentially unspectacular. They point neither to a slump nor to an upswing worthy of the name.
French GDP growth in the third quarter was somewhat stronger than in Germany, at 0.3% on the previous quarter. However, unlike in Germany (see our separate NewsLine), the previous quarter was not revised upwards but slightly downwards. Moreover, the 0.3 percentage point contribution to growth from inventories and the 0.2% drop in private sector employment (both q-o-q and y-o-y) also published today are worrying. All told, France narrowly skirted a recession and the economy remains on shaky ground. The new figures leave our forecast of GDP growth of around ½% this year and 1% next unchanged.
Things are markedly worse in Italy, the second eurozone country that, like France, is at the focus of criticial attention due to its difficulties with the consolidation targets set by Brussels and its “reform shortcomings”. With sequential GDP growth rates of -0.2% in the second quarter and now -0.1% in the third Italy finds itself in a (mild) recession. This is the 13th quarter in a row without positive sequential growth. In 2014 as a whole the Italian economy is also likely to shrink by an estimated 0.3% and in 2015 growth is unlikely to reach even 0.5%.
Among the eurozone countries that were particularly zealous on the reform front under the bailout conditions, Greece reported by far the strongest GDP growth in the eurozone with 0.7% (q-o-q), followed by Spain with 0.5%. There were no new figures for Ireland today, but the 6.5% year-on-year increase seen in the second quarter easily tops all other eurozone countries. In Spain gross domestic product is now 1.6% up on a year earlier, in Greece 1.4% and in Portugal 1%. All in all, it is encouraging that the recovery in these countries is becoming more visible for the crisis-weary population.
For the eurozone as a whole we are sticking with our forecast of a moderate upwards trend, with economic growth of 0.8% in 2014 and 1.2% next year. The slide in the oil price is acting like a stimulus program, low inflation rates are unlikely to prompt consumers to delay spending (“deflation behavior”) but will rather boost consumption, the fall in the euro is buoying exports and the ongoing ultra-loose ECB policy should serve to ensure that the eurozone economy finally starts to pick up somewhat more speed.