Eurozone Narrowly Avoids Return To Contraction In Third Quarter Led By French Weakness

Following the second quarter 0.3% rise in Eurozone GDP, which ended a multi year European recession (and who can possibly forget all those "strong" PMI numbers that helped launch a thousand clickbait slideshows), the proclamations for an imminent European golden age came hot and heavy. This was before the imploding European inflation print was announced and certainly before the ECB had no choice but to cut rates and even hint at QE, shattering all hopes of European growth. And just over an hour ago, the latest validation that just as we expected Europe is on the verge of a triple dip recession, came out of Eurostat (which may or may not get back to the issue of Spanish data integrity eventually), which reported that just like in Japan, the sequential growth rate in Europe is once again not only stalling but was dangerously close to once again contracting in the third quarter when it printed by the smallest possible positive quantum of 0.1%.

 

The WSJ map below conveniently shows that while Germany grew 0.3% in Q3, even if said growth is precarious, and Spain had a laughable 0.1% growth despite nearly 30% unemployment, it was France and Italy, both contracting at a 0.1% rate, that was the marginal source of disappointment.

 

The full breakdown by Euro area nation:

WSJ has a detailed breakdown:

Euro-zone GDP expanded 0.1% from the previous quarter, or 0.4% at an annualized rate, the European Union's statistics agency Eurostat said Thursday. That is down sharply from roughly 1.2% annualized growth in the second quarter. The euro-zone economy contracted for six-straight quarters from late 2011 through the first three months of this year.

 

Germany's GDP increased 1.3% in the third quarter from the preceding period on an annualized basis, according to calculations by J.P. Morgan matching economists' forecasts. That marked a significant slowdown from the second quarter, when German GDP swelled 2.9% annualized, buoyed by a rebound in construction and other production after a harsh winter.

 

France's GDP unexpectedly contracted by 0.6%, at an annualized rate, in the third quarter. Household spending increased slightly, but not enough to offset steep slides in investment and net trade.

 

Analysts see little evidence of a quick turnaround in France. "Private consumption will remain hampered by high unemployment while a strong export-led recovery will remain unlikely before further efforts are made to increase the country's attractiveness," said Julien Manceaux, economist at ING Bank, in a research note.

 

Italy's economy shrank slightly, its ninth-straight quarterly contraction.

 

Germany, France and Italy combine for two-thirds of euro-zone GDP.

 

...


Yet even if the euro zone is, technically speaking, no longer in recession, by many measures including unemployment, wages and inflation the currency bloc remains stuck in a severe downturn. The jobless rate is at a euro-era high of 12.2%. Annual inflation slowed to a mere 0.7% in October, far below the ECB's target of slightly below 2% over the medium term.

And considering that it is now the ECB's primary mission to lower the Euro, since in its view the threat of redenomination is gone and Draghi can afford lower EUR pairs without setting off the sovereign bond sell off timebomb (he is wrong), expect even more such disappointing reports in the future to justify the weaker currency. Sure enough, if yesterday's warning by the ECB's Praet of potential QE was not enough to push the EURUSD pair lower, today's GDP report has once again succeeded in lowering the pair from 1.35 to just above 1.34.

The currency wars are now once again fully back on, and like every time, the scramble to telegraph one's economy is weaker is of paramount importance.

Source: Eurostat