Bloomberg News

Europe Growth Holds at 0.2% as Region Braces for Recession

November 16, 2011

(Updates with ZEW index starting in second paragraph. For more on the European debt crisis, see EXT4.)

Nov. 15 (Bloomberg) -- Europe’s economic expansion failed to accelerate in the third quarter as Germany and France struggle to shore up a region bracing for a recession sparked by an escalating debt crisis.

Gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace, the European Union’s statistics office in Luxembourg said in a statement today. That matched the median forecast of 39 economists surveyed by Bloomberg News. From a year-earlier, GDP increased 1.4 percent. A separate report showed that German investor confidence fell to a three-year low in November.

European growth may slow in the fourth quarter as leaders continue to battle the sovereign-debt crisis. Italian and Spanish bond yields climbed today on concern governments will struggle to implement promised austerity measures. EU Economic and Monetary Affairs Commissioner Olli Rehn said last week that the recovery “has come to a standstill” and European Central Bank President Mario Draghi warned about the risk of a “mild recession” when the ECB unexpectedly cut rates this month.

“An economic contraction in the current fourth quarter seems hard to avoid,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “The risk of a new recession threatens to compound the euro zone’s debt crisis, which, judging from today’s surge in Italian and Spanish bond yields, is very much alive and kicking.”

EU Bailouts

The yield on Italy’s 10-year bond jumped above 7 percent today, the level that prompted Greece, Ireland and Portugal to seek EU bailouts. Spanish bonds yielded 6.3 percent after an auction of 12-month debt today, approaching the euro-era record of 6.46 percent.

The euro declined against the dollar for a second day and traded at $1.3539 as of 12:57 p.m. in London, down 0.7 percent on the day. The 17-nation currency fell 0.9 percent yesterday.

Former EU Competition Commissioner Mario Monti will head a new government in Italy after Prime Minister Silvio Berlusconi resigned, becoming the fourth leader of a southern EU country to be brought down by fallout from the debt crisis.

The ZEW center in Mannheim Germany said today its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.2 from minus 48.3 in October. That’s the lowest since October 2008.

Biggest Economies

Expansion in Germany and France, the euro region’s two biggest economies, gained strength in the third quarter on stronger consumer spending. German GDP growth accelerated to 0.5 percent, while France’s economy expanded 0.4 percent after shrinking 0.1 percent in the previous period.

At the same time, the Spanish and Belgian economies stalled in the three months through September, while the Netherlands and Portugal saw contractions. Portugal, which is cutting spending and increasing taxes to meet the terms of a 78 billion-euro ($107 billion) international aid plan, said its economy shrank for a fourth consecutive quarter.

Greek GDP contracted 5.2 percent in the latest three months from the year-earlier period; a quarter-on-quarter figure wasn’t released for Greece.

Recent surveys indicate the pace of growth won’t pick up in the current quarter. A euro-area composite index of manufacturing and services fell to a 28-month low in October, according to a Nov. 4 report. A gauge of executive and consumer sentiment in the economic outlook fell to the lowest in almost two years, while investors also became more pessimistic.

Siemens AG, Europe’s largest engineering company, on Nov. 10 forecast stagnant profit for next year as sales growth moderates and the global economy cools. Its shares have fallen 18 percent since the end of August.

Outlook Worsens

The European Commission in Brussels last week cut its euro- area growth forecast for next year by more than half and said it sees the risk of a recession as the sovereign-debt crisis continues. The commission sees growth of 1.5 percent this year and 0.5 percent in 2012.

As European governments struggle to contain the debt crisis, German Chancellor Angela Merkel called yesterday for an overhaul of the EU, advocating closer political ties and tighter budget rules. Marco Buti, head of the European Commission’s economics division, warned last week that the slowdown may be more profound than the EU forecasts.

“The probability of a more protracted period of stagnation is high,” Buti said in the EU forecasts on Nov. 10. “A deep and prolonged recession complemented by continued market turmoil cannot be excluded.”

While leaders agreed on Oct. 26 to beef up the region’s rescue fund, they have yet to flesh out details of the plan. U.S. Treasury Secretary Timothy F. Geithner said last week that Europe’s plan is a “good framework, but it needs to be put in place with the speed that markets require.”

In a separate report today, the EU statistics office said exports fell 1 percent in September from the previous month on a seasonally adjusted basis, while imports declined 3.2 percent. The euro region posted a trade surplus of 2.1 billion euros, compared with a deficit of 1.2 billion euros in August.

--With assistance from Kristian Siedenburg in Vienna. Editors: Fergal O’Brien, Simone Meier

To contact the reporter on this story: Svenja O’Donnell in London at

To contact the editor responsible for this story: Craig Stirling at

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