Eurozone Eked Out Growth in Third Quarter
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Version 0 of 1. PARIS — The European economy is barely managing to pull out of a rut, raising concern among global policy makers that continued sluggishness in the eurozone’s richest countries may begin to ripple beyond the Continent’s borders and pose risks to the recovery in the United States. The 18-nation euro economy grew 0.6 percent in the third quarter on an annualized basis, Europe’s statistics agency said Friday, well below its precrisis growth rate of around 2 percent. The big drags were the eurozone’s largest economies, as a slowdown in Germany, a weak recovery in France and a triple-dip recession in Italy weighed on the region. In a surprising role reversal, countries that were hardest hit by Europe’s debt crisis have started to rebound faster than the biggest economies, especially Greece, which grew the fastest of any eurozone country and officially exited a wrenching six-year recession. Ireland and Spain, which had struggled to recover from major housing busts, also performed well. Still, it was hardly a relief. Nor was it enough to offset the slowing of Europe’s core economies, or to reverse the stark reality of high unemployment, sluggish job creation and ultralow inflation that have become embedded across large parts of the region. “What’s of concern to people when they look at Europe is that the weakness is now coming from the big three countries,” said Mohamed A. El-Erian, chief economic adviser at the German insurer Allianz, referring to France, Germany and Italy. “It’s no longer a story about the periphery; the core is now weakening.” The failure to generate a European revival six years after the global financial crisis broke out has stoked alarm elsewhere, including Washington, where there are concerns about collateral damage to the American recovery. In a speech this week before a Group of 20 economic summit meeting — which is to start Saturday in Brisbane, Australia, and where leaders including President Obama and Chancellor Angela Merkel of Germany will gather — Treasury Secretary Jacob J. Lew bluntly criticized Europe’s handling of the crisis. “Status quo policies in Europe have not achieved our common G-20 objective of strong, sustainable and balanced growth,” Mr. Lew told the World Affairs Council in Seattle. “Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump.” “The world cannot afford a European lost decade,” he added. Concerns about the Continent have also been building in Britain, which this week lowered its growth and inflation forecasts. Mark Carney, the Bank of England governor, warned on Wednesday that moribund growth in Europe could menace Britain’s fledgling economic recovery. “A specter is now haunting Europe — the specter of economic stagnation,” he said. The comments reflected growing frustration that leaders in Europe, the world’s second-largest economic bloc, were not moving urgently to stoke a recovery after a crippling downturn that critics say has been made worse by austerity policies. With a lack of ideas in eurozone capitals for jump-starting growth, the European Central Bank has been taking what Mr. Lew called “forceful steps” to support the European economy through low interest rates and private-sector bond purchases, similar to some of the weapons the Federal Reserve has deployed in the United States. But “this alone has not proven sufficient to restore healthy growth,” Mr. Lew said. Fears of stagnation may ratchet up pressure on Mario Draghi, the European Central Bank president, to do more. But this week, Mr. Draghi essentially said the bank did not have the power to propel a recovery on its own. In a speech in Rome, he warned that European growth would not pick up unless banks started lending more and governments encouraged investment, improved national competitiveness and took steps to lower unemployment. Support by the central bank has become more urgent amid signs that ultralow inflation is settling in across the eurozone. Lowflation, as some economists call it, makes it harder for households and governments to pay off debts, and it could further crimp Europe’s recovery prospects. On Thursday, a European Central Bank survey showed that inflation would remain at worrisomely low levels before picking up slightly next year. The annual inflation rate in the eurozone was near a five-year low of 0.4 percent in October, and the central bank now expects a rate of 0.5 percent for 2014 — well below the target of close to 2 percent. The gloomy outlook has been mitigated by signs of better performance in the countries on the periphery of the eurozone. Greece, which became the epicenter of the euro crisis in 2010, grew 0.7 percent on a quarter-over-quarter basis, the fastest pace in more than six years. “Greece is back,” Prime Minister Antonis Samaras declared Friday. He has overseen a steady recovery and a marked improvement in the nation’s fiscal performance after two multibillion-euro international bailouts. This year, he led Greece’s return to borrowing in financial markets. Still, Greeks are grappling with more than 25 percent unemployment, and a wrenching austerity program has compromised Mr. Samaras’s popularity before a crucial election in February that could destabilize his government. The Spanish economy, which was in recession a year ago, grew 0.5 percent on a quarterly basis from 0.6 percent between April and June. Ireland, which has not yet calculated third-quarter economic figures, grew by 1.5 percent in the second quarter, down from a 2.8 percent pace in the first quarter but still much better than the contraction it experienced at the end of last year. In France, where a languishing economy has pushed President François Hollande’s political popularity to new lows and propelled gains for the far-right National Front party, growth expanded in the third quarter for the first time this year, by 0.3 percent, after contracting in the second quarter and failing to grow at all in the first. But the French finance minister, Michel Sapin, acknowledged that the increase was “too small for the job creation necessary for our country.” Italy, for its part, slid into yet another recession despite pledges from Prime Minister Matteo Renzi to eschew austerity and turn the economy around. Growth shrank 0.1 percent in the third quarter from the second, when the economy contracted 0.2 percent. Germany has been the biggest concern. The German economy, typically an engine of growth, only narrowly escaped recession, expanding 0.1 percent from the previous quarter, when output contracted by a revised 0.1 percent. “Germany’s virtuous circle is coming to an end,” Carsten Brzeski, an analyst at ING Bank, said in a note to clients. He said it was “the first time the German economy underperformed the rest of the eurozone in two consecutive quarters since the doomy days of the crisis.” These days, he added, Germany is more of “a one-eyed king in the land of the blind than an economic superman.” Economists say the region is flirting with entering a triple-dip recession, especially if national governments do not move quickly to create growth and jobs, like making hiring conditions easier for businesses and investing in major public works projects. Unemployment in the euro area is stuck near a record high of 11.3 percent — in contrast to the jobless rate in the United States, which has fallen to 5.8 percent from 10 percent at the height of the crisis. As if that were not enough, Europe’s recovery could be further menaced by renewed tensions between Russia and Ukraine, should a conflict lead to a new round of sanctions by Western countries and retaliatory sanctions by Moscow toward Europe. “We are at most one or two rounds of sanctions and countersanctions away from pushing Russia into a deep recession, and Europe into a recession,” Mr. El-Erian of Allianz said. |