3Q GDP: +0.2% q/q, +1.4% y/y
2Q GDP: +0.2% q/q, +1.7% y/y (+1.6%)
1Q GDP: +0.8% q/q, +2.4% y/y
4Q GDP: +0.3% q/q, +2.0% y/y (+1.9%)
–

PARIS (MNI) – The ongoing weak performance of the Eurozone economy
in 3Q was due to anemic investment and a drag from inventory changes,
Eurostat said Tuesday, confirming its initial estimate of quarterly GDP
growth of 0.2% — just as in 2Q.

On the expenditure side, private consumption recovered by 0.3% from
a half-point drop in 2Q, contributing 0.2 point to 3Q GDP growth. While
retail sales stagnated over the quarter, new car purchases revved up,
notably in France. Consumption was the main driver of 3Q growth in
Germany. Yet costlier food and energy limited gains across the Eurozone.

Fixed-capital investment grew by only 0.1% in 3Q, contributing
virtually nothing to overall growth, after no change in 2Q. Public
consumption was flat on the quarter after a 0.1% dip.

Despite waning global demand, exports regained momentum, growing by
1.5% after +1.1% in 2Q. As the recovery in domestic consumption boosted
imports by 1.1% after +0.3% in 2Q, foreign trade contributed 0.2 point
to GDP growth after a 0.4-point add in 2Q.

Inventory changes subtracted 0.2 point from 3Q growth after adding
0.1 point in each of the three preceding quarters.

Eurozone industry regained some traction in 3Q, expanding by 0.9%
after a slowdown to +0.3% in 2Q. But construction activity contracted
further and investment was throttled by financial market tensions and
unpromising demand prospects. The quarterly growth contributions of all
main economic sectors was insignificant, Eurostat estimated.

Faster growth in the Eurozone’s two largest economies was largely
offset by slowdowns or downturns elsewhere. In Germany, growth recovered
to +0.5% from +0.3% in 2Q. Activity in France bounced back 0.4% after a
0.1% dip. But growth in Spain ground to a halt after slowing to +0.2%.
(No estimate was released for Italy.)

Among the smaller reporting economies, 3Q growth was weaker in
Austria (+0.3%), Belgium (flat) and Estonia (0.8%) and steady in
Slovakia (+0.8%). Activity contracted in the Netherlands (-0.3%),
Portugal (-0.4%), Slovenia (-0.2%) and Cyprus (-0.8%). Finland bucked
the trend with a marked acceleration in activity (+0.9%).

As global activity has continued to lose momentum in the meantime
and no end to the EMU debt crisis is in yet sight, the Eurozone now
appears headed for recession.

Leading indicators have tumbled rapidly in recent months. The
November factory PMI showed output contracting for the fourth month in a
row (46.4) and new orders lower for the sixth straight month (43.3),
both falling at the fastest pace in two and a half years.

In the services PMI, the fall in activity (47.5) and new business
(46.9) was less steep than in October, but the accelerating drawdown in
backlogs (46.1) still points to even weaker activity ahead.

Chilling business sentiment in a climate of social tensions, where
most consumers can look forward only to rising taxes and further
cutbacks in social services, could feed on itself unless EU leaders
manage somehow to break the spell of pessimism.

With unemployment rising and wage gains barely keeping up with
prices, consumption is likely to lose momentum in coming months.

Last week, the OECD projected a “modest” contraction of activity in
4Q and 1Q and a sluggish recovery afterwards, giving average GDP growth
of only 0.2% next year.

“Fiscal consolidation and adjustment of private sector balance
sheets will continue to restrain demand growth. Unemployment will begin
to rise again and there will be a wide margin of spare capacity,” the
OECD predicted. “Consumption growth will slow as households undertake
precautionary saving, investment will be weak as projects are put on
hold and financing becomes scarcer, and global weakness will hurt export
growth.”

A few weeks earlier, the European Commission had forecast Eurozone
GDP growth of 0.5% next year, with nearly all countries facing a marked
slowdown and Greece and Portugal still in recession.

With consumption and investment even more sluggish and public
spending in retreat, nearly half of next year’s meager growth would
essentially come from waning import demand, the Commission predicted.

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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