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Eurozone GDP Growth Slipped In 3Q

A mixed message from a divided institution.A mixed message from a divided institution.
A mixed message from a divided institution.Photograph by Daniel Roland — AFP/Getty Images

The Eurozone’s economy slipped in the third quarter as the slowdown in China and other emerging markets more than offset the benefit to consumers from low oil prices.

According to the E.U.’s statistics office Eurostat, gross domestic product among the Eurozone’s 19 members rose by 0.3% in the three months to September, down a shade from 0.4% in the second quarter. That’s just a tad shy of the 0.4% expansion posted by the U.S..

In year-on-year terms, GDP was up 1.6%, a small improvement from 1.5% in the year through June. But the figures are further illustration of how even an ultra-loose monetary policy from the European Central Bank, which has driven the euro to a 12-year low against the dollar this year, still hasn’t created a self-sustaining recovery in the region. ECB President Mario Draghi hinted again Thursday that the bank may extend or increase its policy of ‘quantitative easing’, given that the weakness of the recovery.

The figures were as expected, and reflect more than anything a slowdown in the German export sector towards the end of the quarter. France, the Eurozone’s second-largest economy, returned to growth with a 0.3% gain after flatlining in the second quarter, and there was an eye-catching positive surprise from Greece, whose economy contracted “only” 0.5%, even though the quarter marked the peak of its fight with the rest of the Eurozone over a new bailout agreement. The figures suggest that the imposition of capital controls in an attempt to stop the country’s banks from collapsing had less of an impact than first thought.

But there were negative surprises too, notably from Italy. The area’s third-largest economy had appeared to be emerging from a long period of stagnation thanks to the European Central Bank’s loose monetary policy, improvements in the balance sheet of its banks and the first fruits of Prime Minister Matteo Renzi’s labor market reform. However, growth fell to 0.2% from 0.3%.

And there was worrying evidence that the recoveries of countries that received bailouts in the last five years were also faltering: Spain, the area’s star performer over the last year, slowed from 1% growth in the second quarter to 0.8%, while Portuguese growth stalled completely, after growing by 0.5% in the previous quarter.

Portugal’s minority center-right government collapsed this week after the three leftist parties that won the majority of seats in September month’s general election refused to support its continuation of bailout-dictated austerity policies. However, it isn’t clear that the three parties have enough common ground to form a coalition government themselves. If they can’t then the country’s president may have to call another election.

Holger Schmieding, chief economist at Berenberg Bank in London, said that “whether or not (the Portuguese slowdown) was related to the rising political risk…it does provide a stark warning: if leftist parties form a new government in Lisbon, as they are trying to do, they would have very little room for maneuver.”

The dollar was a little weaker against the euro after the data at $1.0775.