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Euro zone recovery slows to 0.1 percent

The 17-nation euro zone economy grew just 0.1 percent in the three months to September after a gain of 0.3 percent in the previous quarter, the Eurostat statistics agency said.

Eurozone growth slowsEnlarge
(Georges Gobet/AFP/Getty Images)

A tepid euro zone recovery slowed to a 'snail's pace' in the third quarter, with powerhouse Germany off its stride and France hit by a surprise contraction, official data showed on Thursday.

The 17-nation euro zone economy grew just 0.1 percent in the three months to September after a gain of 0.3 percent in the previous quarter, the Eurostat statistics agency said.

Germany, Europe's largest economy, eked out growth of 0.3 percent, down from 0.7 percent in the second quarter, while France slipped back, its economy shrinking 0.1 percent after a gain of 0.5 percent.

The euro zone emerged from a deep and record 18-month recession in the second quarter with growth of 0.3 percent and it had been expected to maintain that pace initially.

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However, recent data has fallen short, with unemployment especially a cause for concern at a stubborn all-time high of 12.2 percent, forcing analysts to steadily downgrade their third quarter estimates to 0.1 percent.

Martin van Vliet of Global Economics ING said the report showed the "recovery continued in the third quarter but at a snail's pace."

The cause appears to be slowing exports, which van Vliet blamed on a stronger euro currency, while domestic demand fails to make up the difference.

"With weak housing markets, still-tight credit conditions and ongoing fiscal austerity still keeping spending ... subdued, domestic demand simply couldn't offset this," he said.

Eurostat gave no details of the figures but in Berlin, its Destatis counterpart said the German slowdown reflected a lacklustre export performance.

Just the day after Brussels formally put Germany on notice because of its over-reliance on exports for growth, Destatis said growth was driven "exclusively from within Germany."

Analysts said the German figures disappointed but were not cause for immediate concern.

"While the overall level of growth may be disappointing, the mix of components looks strong," said Berenberg Bank economist Christian Schulz.

"The German economy remains the stronghold of the euro zone," said ING DiBa economist Carsten Brzeski, highlighting a "positive mix of record high employment, wage increases and strong external demand for German products."

Recovery struggling for momentum

Howard Archer of IHS Global Insight said the report showed the euro zone "just about managing to keep growing, it is struggling to develop recovery momentum."

"It was particularly disappointing to see France suffer a renewed dip ... which highlights concern about its underlying competitiveness," Archer said.

As for Germany, the downturn is of concern but "the economy still looks to be in relatively decent shape," he added.

Archer said growth should "edge higher in the fourth quarter but we suspect that recovery will remain gradual and vulnerable in the face of still significant headwinds."

Accordingly, the European Central Bank, fresh from cutting interest rates to a record-low 0.25 percent last week, will have to be ready to do more to boost the economy, he said.

Other analysts made a similar point.

The report does no necessarily mark "the start of a fresh leg down. However, it does confirm that the euro zone recovery will be a slow affair," said Nick Kounis of ABN AMRO.

"The weak growth figures therefore keep further ECB action very much on the table," Kounis added.

Eurostat said that compared with a year-earlier, the euro zone shrank 0.4 percent in the third quarter, slightly better than the 0.6 percent contraction posted in the second.

The wider 28-member European Union economy also slowed in the third quarter but not by as much -- to 0.2 percent from 0.3 percent in the second.

Compared with third quarter 2012, the EU showed growth of 0.1 percent after a contraction of 0.2 percent in the second quarter this year.

Among other member states, Spain gained 0.1 percent after shrinking the same amount in the second quarter while Italy contracted 0.1 percent after falling 0.3 percent.

Non-euro Britain was among the star performers as growth picked up to 0.8 percent from 0.7 percent.

Eurostat noted that the US economy accelerated in the third quarter to growth of 0.7 percent from 0.6 percent in the second, highlighting Europe's much weaker performance.

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