Weak growth keeps the pressure on eurozone

 

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The Independent Online

The eurozone economy remains at serious risk of lapsing back into recession, despite eking out some growth in the third quarter of the year, analysts warned yesterday.

Eurostat reported that the GDP of the 18-member single- currency zone expanded by  0.2 per cent in the three months to September, up from a 0.1 per cent growth rate in the second quarter and slightly more than the markets had expected.

But analysts said deflation and weak demand could yet pull the eurozone back down. “If these risks materialise, [it] can easily slip into another recession,” said Petr Zemcik of Moody’s Analytics.

“The [GDP] rise does not change the big picture of an economy more or less treading water,” said Marchel Alexandrovich of Jefferies.

The weak growth figures are also unlikely to ease the pressure on the European Central Bank to broaden its monetary stimulus measures to the purchase of corporate bonds, and possibly even sovereign debt. “This is not an outlook that policymakers could possibly be satisfied with,” Nick Kounis of ABN Amro said . “Indeed, we still expect the ECB to downgrade its growth and inflation forecasts in December, which should pave the way for additional monetary stimulus”.

Jonathan Loynes of Capital Economics said there was still a large degree of spare capacity in the eurozone economy, which heightened the danger of deflation taking hold.

“The ECB and national governments still have a lot of work to do,” he said.

Germany, the bloc’s dominant economy, narrowly managed to avoid entering recession in the third quarter with GDP growing by 0.1 per cent, following the second quarter’s 0.1 per cent fall. Troubled France also posted a 0.3 per cent expansion, following a  0.1 per cent drop previously.

Spain managed to continue its relatively strong expansion with growth of 0.5 per cent, and Eurostat estimated that depression-struck Greece returned to growth for the first time in six years earlier this year. However, Italy’s recession dragged, on with GDP falling by another 0.1 per cent.

The eurozone’s GDP remains 1.3 per cent below its 2008 peak. Both the US and the UK have made up the ground lost in the global financial crisis some time ago. Mario Draghi, the President of the ECB, has said he expects the central bank’s new asset purchase programme to boost its balance sheet by around €1trn over the next few years.

Annual consumer price inflation in the eurozone strengthened slightly to  0.4 per cent in October, up from 0.3 per cent in September but still the lowest level since the onset of the global financial crisis.

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