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Updated 10:42 16/06/19

Eurozone growth slows to 0.2% as recession risk rises

Liam Sheasby

By Liam Sheasby, News Editor

31 Oct 2018

The latest GDP figures from Europe show that growth in the Eurozone has halved, registering 0.2% in the third quarter of 2018. Growth had been forecast to remain at 0.4%, but stagnation in both Italy and Germany has weighed heavily on the European outlook. Outside of the Eurozone, growth within the European Union was also subdued, dropping from 0.5% to 0.3%.

Inflation is also causing a headache within the Eurozone, as consumer prices rose by 2.2% in October and core inflation rose to 1.1%. The CEBR - Centre for Economics and Business Research – has now upgraded its likelihood of a global recession within the next two years from a 20% chance last autumn to 33% chance.

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At present the main area of concern is Italy, with the new coalition government (Five Star Movement and Lega Nord) amid a stubborn disagreement with the European Central Bank following their latest budget proposals. The ECB expects Italy to pay debt back at a higher rate, as per the previous administration, but economists have pointed out that while this new repayment rate is slower, is only fractionally less, and the former came at the expense of much more domestic growth than the repayments have achieved. Italy’s Prime Minister, Giuseppe Conte, has publicly said that the government only plans on one year of this rate of repayment, before increasing the rate as Italy’s economy bounces back.

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Italy is not alone in suffering a poor Q3 however. Germany, a major exporter within the EU, has also suffered, with a combination of global trade restrictions and new emissions testing for the automotive industry slowing output right down. A monthly report from the Bundesbank last Monday said that growth “may have come to a temporary halt” – the first such stalling of the German economy in over three years.

Germany also had the news that Chancellor Angela Merkel plans to step down as her party’s chairperson this December, and not contest her premiership when the next General/Federal Elections are held.

The French economy was a glimmer of hope amidst the slowdown within Europe though, with a rise to 0.4% GDP growth. Statistics body INSEE reported that consumer spending and business investment were both up between July and September; double the rate of Q2 but still fractionally shy of the 0.5% rate predicted.

Andy Scott, Associate Director at independent financial risk management consultancy JCRA, told The Guardian that last year’s strong growth has seemingly fizzled out.

“The data appears to show how Trump’s trade measures, a lack of clarity over Brexit and Italy’s budget dispute have resulted in significant loss of momentum for Eurozone economies, despite domestic conditions remaining favourable. So far, the EU has no real response to the Trump administration’s “America first policy”. This alongside a significant fiscal stimulus in the form of tax cuts, has materially boosted US economic growth, while global growth is slowing.”

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