Germany at heart of more modest growth in the eurozone

AP News
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Posted: Nov 15, 2016 7:33 AM

LONDON (AP) — Solid growth in countries at the heart of Europe's debt crisis over the past few years, such as Greece and Spain, wasn't enough to make up for a slowdown in Germany in the third quarter as the 19-country eurozone stumbled to another period of muted growth.

In a detailed country-by-country assessment of the July to September period, the European Union's statistics agency confirmed Tuesday that the 19-country eurozone as a whole grew by a quarterly rate of 0.3 percent for the second quarter running.

That equates to an annualized rate of around 1.2 percent — way short of the sort of growth that will see widespread increases in living standards and sustained falls in the number of unemployed.

The figures from Eurostat showed that the modest pace of growth was largely due to a slowdown in Germany, the single currency bloc's biggest economy. Growth in Germany halved to 0.2 percent during the period.

Growth was also 0.2 percent in France, the eurozone's second-biggest economy. That, however, represented a modest improvement from the second-quarter's 0.1 percent decline.

There were some highlights in the figures though, largely related to those countries still dealing with the aftermath of a debt crisis that at times nearly spelled the end of the euro currency.

Greece, which is in the middle of its third international bailout program, grew by a quarterly rate of 0.5 percent while Spain expanded by 0.7 percent — welcome news for the two countries with the highest unemployment rates in the region of around 23 percent and 19 percent, respectively. Portugal, which like Greece also required an international bailout, did even better, growing by 0.8 percent during the quarter.

A series of indicators have suggested that all three countries appear to have enjoyed a bumper tourism season during the summer, partly because many holidaymakers switched from other hotspots in the Mediterranean such as Egypt, Tunisia and Turkey following a string of attacks.

Any pick-up in the overall rate of growth in the eurozone as a whole over the coming quarters rests less on those so-called peripheral countries than those at the "core," notably Germany.

Though ING Economist Carsten Brzeski said the German figures indicate that the country is experiencing a "soft landing" and headed for a period of "solid, though possibly sub-trend, growth in the quarters ahead," he warned over the potential "downside risks" to the German economy stemming from any protectionist measures that the upcoming U.S. government may enact and Britain's decision to leave the European Union.

There are signs that last week's election of Donald Trump as the next U.S. president is already having an impact.

In a survey of German investor sentiment published Tuesday by the ZEW institute, there were indications that responders were "less positive" than before Trump's election.

"This suggests that, despite the recovery in financial markets from the initial shock of the result, investors are still concerned about its global implications," said Jack Allen, European economist at Capital Economics.

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David Rising in Berlin contributed to this report.