Euro-area recovery fizzles

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

FRANKFURT, Germany — The euro area's nascent economic recovery lost momentum in the third quarter as growth in Germany slowed and France's economy unexpectedly contracted.

Gross domestic product in the 17-nation euro area rose 0.1 percent in the three months through September, down from a 0.3 percent expansion in the second quarter, the European Union's statistics office in Luxembourg said Thursday. That's in line with the median forecast in a Bloomberg News survey of 41 economists.

The slowdown comes as the currency bloc struggles with the legacy of a debt crisis now in its fifth year and just after it emerged from its longest-ever recession in the second quarter. Unemployment stands at a record 12.2 percent and inflation slowed to the lowest level in four years in October, leading the European Central Bank to cut its benchmark rate to a record low of 0.25 percent last week.

"We are seeing a painfully slow recovery," said Frederik Ducrozet, senior euro-area economist at Credit Agricole CIB in Paris. "I wouldn't expect any positive surprises for next year either. The good news is that the economy will grow, but definitely too slowly to significantly reduce unemployment."

In Germany, GDP increased 0.3 percent, in line with the median forecast in a separate Bloomberg News survey. The French economy unexpectedly contracted 0.1 percent.

Italy, the region's third-largest economy, suffered a ninth straight quarter of contraction, extending its longest stretch of decreasing GDP since the creation of the euro. Spanish GDP rose 0.1 percent.

The region's jobless rate of 24.1 percent among those under 25 years caused European leaders meeting in Paris this week to boost funds to tackle the issue.

"Youth unemployment is the true nightmare of our country," Italian Prime Minister Enrico Letta said on Oct. 21 in Rome, referring to more than 40 percent of those aged between 15 and 24 searching for work in Italy.

Lanxess, a synthetic rubber maker that joined Germany's DAX index a year ago, lowered the top end of its profit-goal range on Nov. 12 and said it expects only "modest" economic momentum to persist in the fourth quarter. In Europe, "the company does not yet anticipate lasting stability," Lanxess said in a statement.

As the euro-area economy struggles to gather strength, the ECB last week repeated its pledge that support from monetary policy will remain in place for as long as necessary. As the currency bloc enters a prolonged period of low inflation, the central bank will keep interest rates at current levels or lower for an extended period of time, Draghi said.

While the euro-area economy is still feeling the pain from its sovereign debt crisis, the risk of a currency break-up was reduced after Draghi pledged to do "whatever it takes" to save the euro a year ago and so-called crisis countries from Portugal to Spain have exited their recessions.

European car sales rose the most in more than two years in September, helped by government incentives in Spain, with Renault SA and Daimler AG posting the biggest gains. Carrefour, France's largest retailer, said domestic hypermarket sales rose for the first time in more than two years in the third quarter.

"The overall improvements in financial markets seen since last year appear to be gradually working their way through to the real economy," Draghi said on Nov. 7. "Output is expected to continue to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance."