Eurozone Economies Growing Too Slowly To Unwind Stimulus Measures

Uneven growth, and high unemployment, continued to affect economic recovery in the 16 countries which make up the Eurozone. While Germany, France and Italy saw slight increases in …

Uneven growth, and high unemployment, continued to affect economic recovery in the 16 countries which make up the Eurozone. While Germany, France and Italy saw slight increases in GDP during the third quarter, the economies of Greece, Finland and Spain continued to contract. This discrepancy among Eurozone economies is making it difficult for the European Central Banks to begin slowing down stimulus measures. See the following article from Money Morning for more on this.

The Eurozone economy officially emerged from recession in the third quarter, but the uneven growth throughout the region and the lingering dangers of high unemployment continue to pose a threat to the recovery.

Comprised of the 16 nations that use the euro currency, the Eurozone saw its economy expand by 0.4% in the third quarter from the previous three-month period, Eurostat reported. However, the economy continued to shrink year-over-year, dropping 4.1% after a 2.8% annualized drop in the second quarter. The greater 27-nation EU economy grew by 0.2% on a quarterly basis.

Third-quarter growth was driven by a slight rebound in industrial production by the region’s biggest exporters.

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The German economy, Europe’s largest, rose a seasonally adjusted 0.7% from the second quarter, when it increased 0.4%. The French economy expanded 0.3% in the third quarter and Italy’s gross domestic product (GDP) increased by 0.6%.

These countries are faring much better than many of their European constituents, such as the United Kingdom. The U.K. economy, which had a large amount of exposure to the financial sector, contracted 0.4% on a quarterly basis.

“From a U.K. perspective, today’s figures do not make pleasant reading,” Charles Davis, senior economist for the Centre for Economics and Business Research Ltd. in London, told The Wall Street Journal. “According to the data, only Cyprus, Estonia, Hungary and Romania suffered larger quarterly contractions in GDP than the U.K. in the third quarter.”

The disparity in growth will make it difficult for the European Central Banks (ECB) to gauge the region’s recovery and unwind its stimulus measures, Davis said.

The economies of Greece, Finland, and Spain are still contracting, as well, and will continue to struggle as long as unemployment across the region remains high. Spain, for example, is being held back by a 19% national unemployment rate.

Europe’s unemployment rate rose to 9.7% in September – the highest since January 1999 – and could peak at 10.7% in 2010. That will constrain consumer spending and leave domestic growth relatively stagnant.

Additionally, the dollar’s 18% slide against the euro could threaten Europe’s recovery undermining the re-emerging export sector.

“We are predicting an 8% to 10% drop in 2010 exports” as a result of the weak dollar, Elana Olesa Munoz, spokeswoman for Miguel Torres SA in Barcelona, one of Europe’s largest wine exporters, told The Washington Post.

This article has been republished from Money Morning. You can also view this article from
Money Morning, an investment news and analysis site.

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