Friday, February 12, 2010

European Growth Slows

From the WSJ:

Economic growth in the euro zone slowed in the final quarter of 2009, as only one of the currency area's four largest economies expanded.

Combined gross domestic product in the 16 countries that use the euro rose by a weaker-than-expected 0.1% in the fourth quarter from the previous quarter, and was down 2.1% on a year-to-year basis, the European Union's statistics agency Eurostat said Friday. In the third quarter, GDP rose by 0.4%.


The fourth-quarter stumble is likely to persuade the European Central Bank against raising its key interest rate or withdrawing support measures for the banking sector quickly. It may also persuade governments of the need to maintain their fiscal stimulus measures at a time when bond investors are calling for swift action to cut budget deficits and contain the buildup of debt


In the third quarter, Germany became the main driver of the euro zone's rebound, but that was reversed in the fourth quarter, when the French economy grew 0.6% from the three months to September, while its larger neighbor stagnated.

While consumer spending in Germany fell, it rose strongly in France as purchases of automobiles surged under the government's car-scrapping plan. In both countries, investment spending declined.


Weakness in Germany has knock-on effects in eastern Europe, where many economies are closely linked to German industry. That was evident in the Czech Republic, where the economy contracted 0.6% from the third quarter.

Most economies in eastern Europe have relied on growing exports to the euro zone to drive economic growth in recent years. With the euro zone near stagnation, their prospects have also faded.

The economies of Hungary, Romania and Latvia continued to contract in the fourth quarter. All three are receiving financial support form the International Monetary Fund.

Above is a chart from the Eurostat report. Click for a larger image (obviously).

A few observations:

1.) While the third quarter growth rate was positive, it was weak (.4). As such, a move lower of .1% in the current environment shouldn't be surprising.

2.) When looking at the chart, note there are only 17 countries that have 4Q GDP numbers compared with 26 in the third quarter. I don't know the reason for this discrepancy. In the third quarter 30.7% of the countries reported negative growth rates. In the 4Q, that number increased to 47% (although so far there are fewer countries reporting).

3.) It looks as though one of the biggest reasons for the overall decrease is Germany's drop from a .7% growth rate in the third quarter to 0% in the fourth, along with Portugal's drop from .6% to 0%.