Eurozone Q3 economic growth lower than thought

Economic growth in the eurozone in the third quarter of 2010 was weaker than previously estimated as investment declined and households held back on spending, according to official figures.

Eurostat, the EU’s statistics office, said eurozone output rose by only 0.3 per cent during the quarter. That’s down on the previous estimate of 0.4 per cent and way below the one per cent growth recorded in the second quarter.

The revision means that the eurozone grew by half the United States’ 0.6 per cent rate and far less than Japan’s 1.1 per cent.

The most marked slowdown in growth was seen in Germany. Though Europe’s biggest economy grew by a still-healthy 0.7 per cent during the third quarter, that was only a fraction of the 2.3 per cent recorded in the second quarter, when its exports surged on a rebound in global trade.

Lower growth was recorded all round the 16-country single currency bloc but Greece was the only one still in recession – its economy shrank a further 1.3 per cent during the quarter, worse than earlier expected.

A more detailed look at the figures suggested that much of the restocking that businesses undertook as they emerged from the recession may have run its course during the third quarter. Gross fixed capital investment, a gauge of business investment, fell by 0.3 per cent in the quarter.

The hope among governments, many of which are turning off the support mechanisms introduced during the recession as they grapple with massive debt burdens, is that consumers will start spending more.

However, there’s little evidence that is happening.

Eurostat reported that household consumption during the quarter increased by a muted 0.1 per cent, down from the previous estimate of 0.3 per cent.

“This, coupled with a lack of any clear visible improvement in the hard labour market data, adds to evidence that the region as a whole may struggle to stage a sustained pick-up in household spending,” said Ben May, European economist at Capital Economics.

As a result of households’ reluctance to spend, the eurozone economy continues to remain reliant on exports, particularly from Germany. Eurostat reported a hefty 1.9 per cent increase in exports during the quarter. Much of the impact on growth, however, was negated by a 1.5 per cent rise in imports.

In the wider 27-country EU, growth was 0.5 per cent, unchanged on the previous estimate but half the rate recorded in the second quarter. The EU as a whole benefited from fairly solid 0.7 per cent growth in Britain.