BERLIN – The French, German and Italian economies expanded less than expected in the fourth quarter, data showed on Tuesday, suggesting the euro zone may not have accelerated out of a third-quarter slowdown. Economists have forecast the euro zone economy as a whole grew by 0.4 percent in the final three months of 2010, after 0.3 percent in the third quarter and 1.0 percent in the second. But that prediction now faces a clear downside risk.
The French, German and Italian economies make up about 65 percent of the single currency bloc. German gross domestic product increased by 0.4 percent, against expectations of a 0.5 rise, decelerating from the 0.7 percent growth registered in the third quarter. In France, the expansion was 0.3 percent, half the expected increase and the same level as in the July-September period, despite a rush to buy cars before a French subsidy scheme ended last year.
Economists had been expecting growth in the euro zone’s second largest economy to rebound to the 0.6 percent it achieved in the second quarter. A strong negative came from businesses running down stocks. French Economy Minister Christine Lagarde said she hoped for stronger growth in the first quarter and maintained the government’s forecast for expansion this year of two percent.
Analysts were less upbeat. “This fairly mediocre figure confirms France is on a path of sluggish growth,” said Alexander Law, chief economist at Xerfi. “If we take out technical and one-off elements, France is on an annualised growth rhythm of 1.2 percent.” Italian expansion was also lower than expected, at just 0.1 percent, while Dutch growth surprised to the upside.
The euro slipped against the dollar after the release of the French and German data, although it then recovered to hold above Monday’s three-week low. Snow and icy weather certainly played a role, giving some hope for a stronger start to 2011. Construction in particular was hit hard and can be expected to rebound. Nick Kounis, economist at ABN AMRO in Amsterdam, said the weather may have shave off 0.3 percentage points off German growth, but this would also have boosted output in the energy sector.
There was likely to be some compensation at the start of 2011, but the early data suggested euro zone expansion was probably stable at 0.3 percent in the final three months. “My feeling is that the underlying pace of growth was a little stronger … we are probably in a moderate recovery scenario which will gather pace through the year as labour markets get better,” he said. Growth in the third quarter tempered after a very strong April-June period – when the German economy powered ahead by 2.2 percent quarter-on-quarter.
Data from across the euro zone are expected to point again to a twin-speed Europe — with a broadly healthy core of northern European countries continuing to expand, while debt-burdened periphery nations struggle. Portugal’s economy shrank 0.3 percent in the last quarter of 2010, reversing a third-quarter expansion and Greece is forecast to contract by 1.2 percent.
The risk premium investors demand to hold Portuguese government debt against equivalent German bunds has risen back above 400 basis points since the start of the month, a sign that it is viewed as next in line for an EU bailout.
European Q4 growth below forecasts
