BL: Economic Growth Grinds to a Halt in Europe After German Spending Stagnates
By Simone Meier
Feb. 12 (Bloomberg) -- Europe’s recovery almost stalled in the fourth quarter as waning spending and investment in Germany unexpectedly brought growth in the region’s largest economy to a halt.
Gross domestic product in the 16-nation euro region rose 0.1 percent from the third quarter, when it gained 0.4 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast expansion of 0.3 percent, the median of 34 estimates in a Bloomberg survey showed. The recession in Greece deepened, with GDP falling 0.8 percent in the fourth quarter after a 0.5 percent slump in the previous three months.
European governments are struggling to contain the fall-out from Greece’s budget crisis as they phase out the stimulus measures used to pull the economy out of a recession. As market turmoil pushes bond yields higher across southern Europe, the recovery is in danger of losing momentum.
It’s “another piece of bad news for policymakers as they struggle to come up with a plan that soothes worries about the credit worthiness of the euro zone’s peripheral economies,” said Nick Kounis, chief European economist at Fortis Bank Nederland in Amsterdam. The recovery is “continuing, but at a snail’s pace.”
Greek Debt
The euro fell for a third day and was down 1 percent to $1.3558 as of 11:00 a.m. in London. German government bonds rose, pushing the yield on 10-year bunds down 3 basis points to 3.20 percent.
The euro has fallen 7 percent in the last two months on concern that Greece’s fiscal problems will spread to other countries.
From a year earlier, euro-area GDP declined a seasonally adjusted 2.1 percent in the fourth quarter. For the full year, the economy contracted 4 percent. Separate data showed that industrial production in the region fell 1.7 percent in December, the most in 10 months.
The German economy stagnated in the fourth quarter after recording 0.7 percent growth in the previous three months, while Italian GDP fell 0.2 percent. France’s economic expansion accelerated to 0.6 percent from 0.2 percent. Greece today revised down its data for GDP for the first three quarters of 2009, indicating its recession was deeper than earlier thought.
‘Serious’
Europe’s governments face a growing dilemma as they seek to fortify recoveries at a time when rising sovereign-debt burdens threaten to hobble expansion. EU leaders yesterday ordered Greece to get its deficit under control and pledged “determined and coordinated action” to protect the currency region in a statement that stopped short of setting out concrete steps.
“It’s too dangerous to try to call the bluff of the bond market,” said Rossa White, chief economist at Dublin-based securities firm Davy. “For clarity, the euro area will have to outline a backstop tied to much stricter enforcement of Greece’s consolidation plan.”
With governments phasing out incentives and unemployment at 10 percent, the highest in more than 11 years, Europe’s recovery is showing signs of waning. Expansion in service and manufacturing industries slowed in January and investor confidence fell for the first time in seven months in February.
Renault SA, France’s second-largest carmaker, on Feb. 11 forecast a 10 percent contraction in European auto demand this year. Chief Executive Officer Carlos Ghosn said there’s “still a lot of uncertainty and volatility.” Bernd Scheifele, CEO of HeidelbergCement AG, is planning an additional 300 million euros in cost cuts this year after he said on Feb. 10 that the company’s markets “showed no recovery in the fourth quarter.”
Export Boost
Still, central banks have begun to scale back some of the measures introduced during the recession. The European Central Bank is phasing out its emergency lending programs, while the U.S. Federal Reserve has said it may raise the interest rate paid on deposits to slow lending. China today ordered banks to set aside more deposits as reserves for the second time in a month to cool the world’s fastest-growing major economy.
Weaker domestic demand may be countered by an export boost from expansion in Asian economies. The International Monetary Fund last month forecast 2010 economic growth of 9.7 percent and 7.8 percent in China and India, respectively, compared with 1.6 percent expansion in the euro area and 2.4 percent in the U.S. The IMF sees the global economy expanding 3.9 percent.
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, forecast on Feb. 5 that China deliveries may increase at least 10 percent this year.
“The paltry pace of fourth-quarter growth makes crystal clear that the euro zone economy cannot yet stand on its own feet.,” said Martin Van Vliet, an economist at ING Group in Amsterdam. “That said, it is premature, in our view, to presume that the recent soft patch in the recovery will persist.”
To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net
Last Updated: February 12, 2010 06:12 EST
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