In the second quarter, the eurozone economy surged by 1%, prompting talk of a sustainable, V-shaped recovery. But third-quarter figures show the rebound losing steam. The zone expanded by 0.4% between July and September. And the outlook is not encouraging.
The periphery continues to struggle, with Italy barely growing, Spain stagnating, and Greece shrinking by 1.1%. More worryingly, it seems that easing global growth and the strong euro have taken their toll on core economies, says Capital Economics. In the export-reliant Netherlands, growth shrank by 0.1% last quarter. The eurozone’s overall growth rate could decline to 0.5% next year from 1.5% in 2010.
The zone’s growth spurt has been largely reliant on Germany. It is heading for its fastest annual growth in 19 years in 2010 – 3.7%. Exports were up by an annual 22.5% in September. But overall momentum is starting to slow. Most exports go to Europe, where austerity drives are hampering growth. Asia is more resilient, but it only accounts for 15% of German exports. Even there growth is softening as interest rates are being raised to tackle inflation. Debt-ridden consumers and steady tightening by state and local governments are undermining America, another key market.
Industrial orders and production fell in September and construction growth has eased. The big question for Germany is whether a rise in consumer spending could pep up growth. So far, consumption has only inched up, says Wirtschaftswoche. One think tank, noting that Germans’ willingness to buy consumer durables is only increasing very gradually, reckons that overall consumption will stagnate at 2009 levels this year.
Germany’s own fiscal tightening next year won’t exactly promote household spending, adds Capital Economics. The upshot is that Germany’s recovery is set to slow to around 1.5% next year. With consumers “unwilling to spend”, there is scant scope for it to bolster growth in the periphery. In sum, not only is much of southern Europe in danger of going bust, but the odds of a eurozone growth spurt alleviating pressure on weak peripheral budgets are dwindling too. No wonder Bank of America Merrill Lynch sees the euro at $1.33 by the end of the year.