Germany at heart of modest growth in eurozone

THE 19-COUNTRY eurozone stumbled to another period of muted growth in the third quarter, as solid growth in countries at the heart of Europe’s debt crisis over the past few years, such as Greece and Spain, wasn’t enough to make up for a slowdown in economic heavyweight Germany.

In a detailed country-by-country assessment of the July to September period, the European Union’s statistics agency confirmed on Tuesday that the 19-country eurozone as a whole grew by a quarterly rate of 0.3 per cent for the second quarter running.

That equates to an annualised rate of around 1.2 per cent – way short of the sort of growth that will see widespread increases in living standards and sustained falls in the number of unemployed.

The figures from Eurostat showed that the modest pace of growth was largely due to a slowdown in Germany, the single currency bloc’s biggest economy. Growth in Germany halved to 0.2 per cent during the period.

Growth was also 0.2 per cent in France, the eurozone’s second-biggest economy. That, however, represented a modest improvement from the second quarter’s 0.1 per cent decline.

There were some highlights in the figures, though, largely related to those countries still dealing with the aftermath of a debt crisis that at one time had threatened the end of the euro currency.

Greece, in the middle of its third international bailout, grew by a quarterly rate of 0.5 per cent, while Spain expanded by 0.7 per cent – welcome news for the two countries with the highest unemployment rates in the region at around 23 per cent and 19 per cent, respectively.

Portugal, which also required an international bailout, did even better, growing 0.8 per cent during the quarter.

Indicators suggest that all three countries enjoyed a bumper summer tourism season, partly because many holidaymakers switched from other hotspots in the Mediterranean such as Egypt, Tunisia and Turkey following a string of deadly attacks.

Any pickup in the overall rate of growth in the eurozone as a whole over the coming quarters rests less on those peripheral countries than those at the core, notably Germany. German Chancellor Angela Merkel

ING economist Carsten Brzeski said the German figures indicate the country is experiencing a “soft landing” and headed for a period of “solid, though possibly sub-trend” growth in the quarters ahead, driven by the domestic economy.

However, he warned about potential “downside risks” to the German economy stemming from any protectionist measures due to either the new US government under Donald Trump or Britain’s decision to leave the European Union.

There are signs that last week’s election of Trump as the next US president is already having an impact. In a survey of German investor sentiment published Tuesday by the ZEW institute, there were indications responders were “less positive” than before Trump’s election.

“This suggests that, despite the recovery in financial markets from the initial shock of the result, investors are still concerned about its global implications,” said Jack Allen, European economist at Capital Economics.