The data published last week on the performance of the eurozone economy in the third quarter of 2014 showed no change to the long and sorry tale of very weak growth.
The economy expanded by just 0.2% in the quarter following meagre growth of only 0.1% in quarter two.
This anaemic performance stands in marked contrast to the US and UK economies, which grew by 0.9% and 0.7%, respectively, in the third quarter.
Indeed, the US economy has grown by between 0.9% and 1.1% in four of the last five quarters.
Meanwhile, the UK economy has averaged a growth rate of 0.75% during the last six quarters. Eurozone growth has averaged just 0.2% over the same period. The strong growth in the US and UK has seen their unemployment rates drop sharply, to around 6%. By contrast, the jobless rate in the eurozone is stuck at 11.5%. Indeed, excluding Germany, the eurozone unemployment rate stands at over 13.5%.
There was not much solace either in the details of the 0.2% rise in eurozone GDP in quarter three. The Italian economy has gone back into recession, with GDP contracting for a second consecutive quarter. The German economy has lost all momentum, with GDP rising by 0.1% after declining by 0.1% in quarter two. Thus, the German economy has stagnated over the past two quarters.
The French economy did expand by 0.3%, but this was driven by inventory building and government spending and so is unlikely to prove sustained. Hence, the French economy is expected to slow down again in quarter four.
The other big eurozone economy, Spain, is showing signs of life, with GDP rising by 0.5% in quarter three. However, the recovery is coming off a low base after a six-year recession that has left the country with a 25% unemployment rate.
The various forward-looking indicators on the eurozone economy point to a continuation of very weak growth. For example, the Composite PMI stood at 52.1 in October, just above the 10-month low of 52.0 reached in September.
Meanwhile, the European Commission’s Economic Sentiment index came in at 100.7 for October, having averaged 100.9 in the third quarter and 102.2 in quarter two.
The key German Ifo business sentiment index has fallen sharply in recent months, hitting a low of 103.2 in October, having been quite stable at over 110 in the first half of the year.
Other national business surveys have also been on a weakening trend in recent months. Thus, it is not surprising that the latest economic forecasts by the commission point to a continuation of the weak growth performance in the eurozone.
GDP is forecast to grow by a sluggish 1.1% next year after rising by only 0.8% in 2014. The commission notes that the recovery in the eurozone is lagging behind elsewhere and struggling to gain any momentum.
As a result, the pressure is mounting on the ECB to ease monetary policy even further. It has already cut interest rates to 0% and commenced an asset-purchase programme to inject more liquidity into the economy.
The ECB’s Governing Council has indicated that it is prepared to implement additional unconventional easing measures should it become necessary to further address downside risks to the economy. ECB staff and Eurosystem committees have been tasked with doing preparatory work on these measures.
Badly needed structural reforms to labour and product markets also need to be implemented in countries such as France and Italy to boost growth and job creation.
The commission says what needs to be done to improve the performance of these economies has been identified. However, there is a marked reluctance in member states to implement these necessary reforms. It is little wonder, then, that their economies continue to perform so poorly.
Oliver Mangan is chief economist of AIB
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