The Eurostat flash estimate for third-quarter eurozone economic growth revealed a slight slip to +0.1% q-o-q compared with +0.3% in the second quarter. Although a tick lower than we had expected, prompting us to revise our 2013 GDP forecast for the eurozone down by one-tenth to -0.4%, we are still penciling in GDP growth of around 1.5% for next year.
Whereas French economic growth had surprised on the upside in the second quarter (+0.5% q-o-q, confirmed by today’s figures), this time the sequential rate dropped surprisingly to -0.1%. This was mainly due to falling exports and rising imports, resulting in a drag on growth from external trade of 0.7 percentage points. By contrast, inventory changes made a positive contribution to growth of 0.5 percentage points. Although private consumption lost momentum, largely due to energy spending returning to normal, it still recorded an increase of 0.2% on the preceding quarter. Price trends are doubtless a fillip here – according to today’s national figures inflation inFrancestood at only 0.6% in October. On the other hand the situation on the labor market is still casting a pall – as the statistical institute INSEE also published today, the decline in employment continued in the third quarter, with the number of people in work now 0.7% down on a year earlier. We see the French economy expanding at sequential rates of 0.3 to 0.4% in the coming quarters following the somewhat erratic GDP performance in the summer. We are thus expecting a marginal increase in GDP of 0.1% this year and moderate growth of 1.2% in 2014.
Encouragingly, the Eurostat figures show that bothSpainand theNetherlandsnotched up slightly positive sequential GDP growth rates again of 0.1% each. By contrast,Italyremains mired in recession (-0.1% q-o-q). As expected,Portugalwas unable to maintain the strong momentum seen in the second quarter, but still logged growth of 0.2%. Overall, as the economy improves, growth differentials within the euro area are likely to be lower:Greece,Ireland,Portugal,SpainandItalyare all likely to record positive growth next year.
Over the next few quarters investment trends will be pivotal for the quality of the recovery in the eurozone. Whereas machinery investment in Germany has already been on the mend since the second quarter, this is not yet the case for the eurozone as a whole. Unlike the eurozone sentiment indicators, capacity utilization in the eurozone is not yet rising substantially.