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Euro zone's economy stalls in third quarter

Brussels, November 15, 2013

The euro zone economy all but stagnated in the third quarter of the year with France's recovery fizzling out and growth in Germany slowing.

The 9.5 trillion euro economy pulled out of its longest recession in the previous quarter but record unemployment, lack of consumer confidence and anaemic bank lending continue to prevent a more solid rebound, data showed yesterday.

In the three months to September, the combined economy of the 17 countries sharing the euro grew by a slower than expected 0.1 per cent.

In the previous quarter it rose 0.3 per cent - the first expansion in 18 months.

The French economy contracted by 0.1 per cent, snuffing out signs of revival in the previous three months.

It had been expected to post quarterly growth of 0.1 per cent and has now shrunk in three of the last four quarters.

German growth slowed to 0.3 per cent, from a robust 0.7 per cent in the second quarter, but Europe's largest economy clearly remains in much better shape.

France is becoming a focus for concern within the currency bloc. The Bank of France predicts the economy will expand by 0.4 per cent in the last quarter of the year but the government's labour and pension reforms are widely viewed as too timid.

A report on French competitiveness by the Paris-based Organisation for Economic Co-operation and Development (OECD) warned that it is falling behind southern European countries that have cut labour costs and become leaner and meaner.

"To reduce the economic lag and lost time, France needs to keep up structural reforms," OECD chief Angel Gurria said.

German growth was fuelled by domestic demand. Exports faltered, another indication of the malaise gripping the rest of the euro zone.

"The European Central Bank's interest rates are far too low for Germany. Germany will probably grow significantly more strongly than the euro zone," said Joerg Kraemer, chief economist at Commerzbank.

"Early indicators point to similar growth in the fourth quarter."

The European Commission forecasts the currency area will shrink by 0.4 per cent over 2013 as a whole before growing by a modest 1.1 per cent in 2014.

However, with unemployment in the bloc running above 12 per cent and one in two young people out of work in Greece and Spain, talk of recovery rings hollow.

Compounding the French gloom, private sector payroll data showed some 17,000 jobs were destroyed in the third quarter, while inflation slowed in October to 0.7 per cent, the weakest level in four years, when France was emerging from a deep recession.

Italy matched France's performance, shrinking by 0.1 per cent. The Netherlands eked out 0.1 per cent growth.

Spain reported last month that it had pulled clear of recession in the third quarter, albeit with quarterly growth of just 0.1 per cent, putting an end to a recession stretching back to early 2011.

Portugal is still struggling with austerity as part of its bailout plan yet managed to grow by 0.2 per cent in the third quarter following stunning 1.1 per cent in Q2. Unlike other embattled euro zone states, unemployment has started to fall there too. Cyprus contracted by 0.8 per cent on the quarter while Greece's deep recession eased a little.

Doubts about an unsteady Italian coalition government's ability to push through economic reforms remain a major concern for the euro zone.-Reuters




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