Economic growth in Euroland halved, Italian economy stagnates

Economic growth in Euroland appreciably slowed in the last quarter. The end of the high growth phase in the Eurozone is thus becoming ever more tangible. Economic growth in the past third quarter achieved a rate of only 0.2 percent on the prior quarter. In the spring the figure had still been 0.4 percent. That said, at least two of the three sets of country data now released for the larger Euroland member countries actually look pretty solid.

For example, France’s economy increased growth to 0.4 percent having in Q2 reported a comparatively sluggish 0.2 percent. However, this acceleration is driven by the economy catching up, not surprisingly, after an extensive rail strike that noticeably reduced economic output in the second quarter. The recovery actually lagged a little behind expectations.

The neighbouring country of Belgium reported a slightly stronger increase in the quarterly gross domestic product (GDP), which rose from 0.3 to 0.4 percent. It was probably higher government investments in the run-up to the local authority elections in mid-October that primed the economic pump. This trend has also been seen in past election campaign periods.

What is unsettling is the fact that Italy, as the third-largest country in Euroland, is not managing to avoid attracting negative headlines. It is at present already in the spotlight because of its expansionary fiscal policy and is in conflict with Brussels. One point of criticism there is the optimistic growth assumptions that underpin the government’s budget plans. The GDP data released today bear out these reservations, as according to the quarterly result the Italian economy did not grow in Q3. While the pace of growth slowed in Q2 from 0.3 to 0.2 percent, it has now come to a standstill.

Today’s releases mean that so far only a few sets of country data are available. The majority will not come out until 14 November, when we also await the figures for Germany with anticipation. Indeed, here too the growth rate can be expected to have slowed. This is already suggested by the weak industrial output figures, amongst others. In particular the consequences of the diesel scandal for the car industry, which is so important in Germany, have of late evidently proven to be quite tough.

However, there are currently no signs of an end to the flatter Euroland economic momentum. This is also signalled by leading indicators. For example, the DZ BANK Euro-Indikator, the European Commission’s economic sentiment indicator and the much-followed IHS Markit PMI all hardly point to a recovery in the current quarter. This corresponds to the picture as we see it: For the current year, we expect economic growth of 1.9 percent and for 2019 a further slowing of momentum to 1.5 percent YoY. As recently as 2017, a comparatively strong plus of 2.4 percent was recorded.

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