Eurozone recovery fades as growth stalls

Europe’s revival from 18 months of recession caught up in the third quarter as exports slowed and the region’s second-biggest economy turnaround.

Over the preceding quarter the 17-nation eurozone’s initial estimate of GDP demonstrated growth of just 0.1%, when the economy grew by 0.3% subsequent to the contracting for six successive quarters through the depths of the region’s debt crisis.

Analysts were foreseeing growth would deliberate as one-off factors like a seasonal bounce back in German construction dull, but the regional figures were getting frailer compare to some had expected. Germany’s rate of growth more than halved to 0.3%, while the French economy shrank by 0.1%.

The numbers verifies doubts that the eurozone is currently under pressure to generate any actual momentum, as record levels of unemployment, weak investment, tight credit conditions and government austerity are weighing on demand.

In September, industrial production and retail sales both drop, and price rises plunged to 0.7%. That encouraged the European Central Bank to slash interest rates to a fresh record low preceding week in an attempt to stop the region falling into deflation and stagnation.

And ECB President Mario Draghi said the bank was ready to take further measures, including another rate cut, if the move fails to have the desired effect.

Unemployment won’t start falling until 2015 at the earliest, according to recent EU forecasts. The European Commission has trimmed its estimate of GDP growth next year to 1.1%, and said it was too early to declare an end to the region’s crisis.

Domestic demand in the eurozone is still very weak with 19 million out of work and wages hardly rising.

“While there’s not much difference between the second and third quarter GDP figures, the deceleration is, psychologically speaking, a major setback for the eurozone,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy.

German domestic demand was accountable for most of the thin growth, with a recovery in exports from countries like Spain and Portugal also helping.

Italy’s economy had a constant decline, while by much less than in prior quarters, but France was weaker compared to what was anticipated.

In the previous week, ratings agency S&P downgraded France on fears the government will be not capable to reinstate the economy’s competitiveness, and the Organization for Economic Cooperation and Development weighed in Thursday, influencing the country to be more determined with its reforms.

It emphasized reasonably high tax rates, insufficient research and development, strict product market regulation and barriers to competition in business services.

The uncertain temperament of the eurozone recovery compares strongly with speedy growth and a surge in confidence in the U.K., where the topic is now concerning when the Bank of England will move to constrict monetary policy.

The central bank raised its growth forecasts on Wednesday and said it expected unemployment to fall much faster than expected just a few months back. Governor Mark Carney said he would be prepared to raise interest rates before May 2015 if it was the right decision for the economy.