3Q GDP flash: -0.1% q/q, -0.6% y/y

MNI survey median: -0.3% q/q, -0.5% y/y
MNI survey range: -0.5% to flat q/q

2Q GDP: -0.2% q/q, -0.4% y/y
1Q GDP: flat q/q, flat y/y
4Q GDP: -0.3% q/q, +0.6% y/y
–

PARIS (MNI) – The Eurozone economy contracted less than generally
feared in 3Q, although the divergence between core countries and the
southern periphery continued to widen, Eurostat estimated Tuesday.

After a 0.2% downturn in 2Q, GDP slipped another 0.1% in 3Q,
confirming a recessionary trend likely to continue at least through the
end of the year.

An upside risk to the consensus forecast was evident after positive
surprises in Germany and France, where GDP grew in both countries by
0.2%. The quarterly contraction in Italy was also flatter than expected
at 0.2%. The decline in Spain narrowed slightly to 0.3%.

Most of the smaller reporting countries also fared better in 3Q,
with the exception of the Netherlands, where GDP fell back 1.1% on the
quarter, and Austria, which sustained a 0.1% dip. Growth in Finland
recovered to 0.3% and accelerated to 1.7% in Estonia. Activity
stabilized in Belgium after a 0.5% decline in 2Q. The slide narrowed in
Portugal to 0.8% and in Cyprus to 0.5%. Growth in Slovakia was steady at
0.6%.

As usual, Eurostat provided no information on GDP components with
its flash estimate.

Available hard data show a modest recovery in retail sales in 3Q
but a drop in new car purchases. If households continued to draw down
savings as in previous quarters, private consumption may have held up
better than suggested by the 350,000 surge in unemployment over the
quarter. Private consumption contributed positively to growth in Germany
and France, according to national estimates.

While industry managed a 0.3% recovery in output in 3Q thanks to
gains during the summer, business investment was probably dampened again
by excess production capacity, dismal demand prospects and still high
borrowing rates in much of the periphery. Two-month results for
construction suggest the downward trend have been interrupted in 3Q.

Foreign trade no doubt limited the downside in 3Q. Seasonally
adjusted growth of goods exports in July-August outpaced that of imports
1.5% to 1.2%, boosting the average two-month trade surplus to E8.5
billion compared to the 2Q average of E7.0 billion. Both Germany and
France benefited from a trade boost in 3Q and the bailout countries no
doubt as well.

Leading indicators point to even weaker activity ahead. The steep
industry setback in September will weigh on the 4Q average. The
composite Eurozone PMI slipped to a 40-month low of 45.7 in October
compared to the 3Q average of 46.3, with only a flatter slide in new
orders 44.7 as a consolation. Economic sentiment as measured by the
European Commission sunk to a 38-month low in October

Fiscal tightening, rising unemployment and subdued wage gains are a
recipe for anemic consumption. Among the larger economies, only in
Germany and perhaps France are consumers likely to be any better off in
coming months, which would accentuate the growing divergence across
Eurozone economies.

Export growth in the bailout countries may only partly offset the
slowdown in Germany, which is not entirely immune to the recessionary
trend on the southern flank.

The Commission has now pushed back its scenario for a gradual
upturn in Eurozone activity into next year. Consumption, employment and
investment would still decline on average, while the meager 0.1% GDP
gain would come entirely from foreign trade.

Professional forecasters surveyed by the ECB now expect Eurozone
growth of around 0.3% next year, down from +0.6% in previous quarterly
poll.

–Paris newsroom +331 4271 5540; email: ssandelius@mni-news.com

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