German deceleration prompts double dip fears for eurozone

The economic recovery of the 16-nation eurozone stuttered in the third quarter of the year, official data published yesterday revealed, with even the strongest countries in the region warning of lower than expected growth. Overall, the eurozone economy grew by 0.4 per cent between July and September, compared to the 1 per cent of growth achieved between April and June.

Even Germany, which has so far been the powerhouse of the recovery, saw growth rates slip markedly. Its GDP grew by 0.7 per cent, well down on the record rate of 2.3 per cent recorded during the second quarter of the year.

France's third-quarter growth was 0.4 per cent, down from 0.7 per cent in the last quarter, while Italy posted 0.2 per cent, down from 0.5 per cent.

In Greece, which continues to be the worst performing member of the eurozone, recession continues. Its economy shrank by 1.1 per cent over the third quarter, though this was a marginally better performance than the second quarter's 1.7 per cent fall.

Jens Sondergard, an analyst at Nomura, described the figures as "slightly disappointing", though he said some sort of slowdown from the buoyancy of the second quarter had been expected. "The data confirmed expectations that the high second quarter GDP growth rates could not be sustained," Mr Sondergard said. "However, the euro-area economy continued to recover in the third quarter."

Nevertheless, the slowdown will be seen as a setback for the UK, for whom the eurozone is the most important trading partner. Mervyn King, the Governor of the Bank of England, warned earlier this week that the pace of recovery in the rest of the world would be the most important factor in whether the UK's own bounceback can be sustained – and how strongly.

As in the UK, there are fears the eurozone recovery could even go into reverse next year. Jennifer McKeown, the senior European economist at Capital Economics, said a particularly poor third quarter performance from the Netherlands, which like Germany is dependent on exports, did not bode well for the prospects of the eurozone's largest economy.

"This is probably a sign of things to come for Germany, where the industrial surveys point to a sharp slowdown," Ms McKeown said. "With the periphery looking worse and worse, we still see the eurozone's recovery grinding to a halt next year."

That would be a serious threat to countries struggling with debt problems, such as Ireland. If they end up exporting less to their neighbours than expected, growth will undershoot expectations, undermining the fiscal assumptions on which debtrepayment plans have been based.

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