LONDON – Economic growth in the 16 countries that use the euro fell by more than half in the third quarter of the year, official figures showed Friday, as the pace of recovery in Germany, Europe's biggest economy, slowed and the Netherlands saw output unexpectedly drop.
Eurostat, the EU's statistics office, said that economic growth in the eurozone moderated to 0.4 percent in the July to September quarter from the 1 percent growth recorded in the previous three month period.
It's also slightly lower than market expectations for a more modest slowdown to 0.5 percent.
The figures also mean that the eurozone economy grew at a slower pace than the U.S. in the third quarter after a stronger performance in the previous three month period.
The U.S. economy grew at an annualized rate of 2 percent in the third quarter, which according to Eurostat corresponds to a quarterly rate of 0.5 percent.
The figures once again highlight the big disparities within the eurozone — while the core countries, such as Germany and France, continue to grow solidly, albeit at a slower pace, debt-laden Greece remains mired in recession.
Earlier, Germany's Federal Statistical Office reported that economic growth in the country slipped back to a still-healthy and broader-based 0.7 percent following a spectacular 2.3 percent boom in the previous three month period. Meanwhile, French growth eased to 0.4 percent from 0.7 percent.
In contrast, Greece shrank a further 1.1 percent in the third quarter as the government continues to enact austerity measures in an attempt to get a handle on the country's massive debts.
Other countries just staggered — Italy saw its growth rate half to 0.2 percent while the Netherlands unexpectedly saw output dip by 0.1 percent.
Jennifer McKeown, senior European economist at Capital Economics, said the contraction in export-reliant Netherlands was a "worrying sign" that the slowdown in the global economic recovery wanes and the euro's recent strength are starting to take their toll on some of the core economies.
"This is probably a sign of things to come for Germany, where the industrial surveys point to a sharp slowdown," said McKeown. "With the periphery looking worse and worse, we still see the eurozone's recovery grinding to a halt next year."
The split within the eurozone, which could well be compounded further in the coming months by the austerity programs being pursued in a number of countries on the so-called periphery, such as Portugal and Ireland, is likely to make policy-making more difficult, particularly for the European Central Bank, which sets interest rates for the single currency bloc.
The worry is that what may be necessary in some economies will be wrong for others.
The ECB is expected to get rid of more of its emergency crisis measures at its policy meeting next month, even though several economies face a number of headwinds over the coming months and many of the banks remain highly dependent on emergency funding from the central bank.
Overriding everything is the reemergence of the debt crisis that nearly bankrupted Greece earlier this year, with Ireland now under market pressure. Even though concerns that Ireland will soon need to get bailed out by its partners in the eurozone have moderated somewhat Friday, the country still faces sky-high borrowing costs in the markets.
Carsten Brzeski, a senior economist at ING, said that the debt crisis doesn't necessarily have to leader to lower growth — after all, the eurozone has grown, as a whole, far stronger than anticipated this year, even though most of the first half of the year was dominated by Greece's debt crisis and whether it would spread.
"Judging from the Greek case in May, the re-emergence of sovereign debt worries should rather be a new challenge for economic governance in the eurozone than a burden on growth prospects," said Brzeski.
Eurostat also said that the wider 27-country EU, which includes non-euro members such as Britain and Sweden, saw growth moderate to 0.4 percent in the third quarter from 1 percent in the previous three month period.
On a year-on-year basis, eurozone economic growth was up an unchanged 1.9 percent higher, while the EU rate increased modestly to 2.1 percent from 2 percent.
These are only preliminary figures as a number of countries, including highly indebted Ireland and Poland have yet to report their third quarter figures.
Separately, Eurostat reported industrial production in the eurozone unexpectedly fell by 0.9 percent in September from the previous month. The expectation in the markets was that industrial output would rise by 0.2 percent.
As a result, the year-on-year increase declined to 5.2 percent from 8.4 percent.
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