Eurozone growth slows as Italy woes weigh

3 min

Brussels (AFP)

Stagnation in Italy and problems with German car production dragged economic growth in the eurozone down to its slowest rate in four years, official data showed Tuesday, prompting concern among analysts.

Gross domestic product in the 19-country single currency area rose just 0.2 percent from July to September, the Eurostat agency said, compared with 0.4 percent in the preceding quarter.

The disappointing data come with Brussels locked in a standoff with Rome over its populist government's plans for larger deficits despite the high public debt load.

Italy, the eurozone's third largest economy, reported zero growth in the third quarter for the first time in four years on the back of "persistent weakness in industrial activity", according to the Italian statistics institute.

Concerns are mounting about Italy's public finances, with Moody's ratings agency cutting the country's credit rating to a notch above junk status earlier this month and Standard and Poor's downgrading its outlook for Italian sovereign debt on Friday.

The eurozone growth figure -- the smallest since the second quarter of 2014 -- was well below the 0.4 percent average forecast of analysts surveyed by Factset financial services.

On a year-to-year basis, economic growth in the eurozone reached 1.7 percent, well below the 2.2 percent rate seen in the previous quarter.

- Concerns growing -

Bert Colijn, Senior Economist at ING bank said the 0.4 percent growth seen in the second quarter "may have felt like a disappointment at the time, but could well have been a last hurrah of the growth cycle".

Hold-ups in car production in Germany related to testing for new emissions rules likely dragged on growth in the 19-country eurozone's economic powerhouse, but Colijn said developments in Italy were a greater concern.

"Perhaps more worrying was the stagnation of growth in Italy, which was the first time in four years that the economy did not post growth over a quarter," Colijn said.

"With budget discussions already tense between Rome and Brussels, this stagnation will only add to concerns."

But Jessica Hinds of Capital Economics gave a more upbeat assessment, suggesting the slow growth was due to "temporary factors" and "some recovery in the coming quarters" could be expected.

The European Commission, the bloc's powerful executive arm, has rejected Italy's 2019 budget, an unprecedented move against a eurozone country that sets the stage for a major showdown with the populist government in Rome.

Other indicators are also pointing to weak growth in the coming quarters -- the commission's Economic Sentiment Indicator, which measures confidence in the eurozone, fell by 1.1 points in October, according to data published Tuesday.

And last week it was announced that business growth in the single currency area fell in October to its lowest level in two years, hit by falling exports according to the closely-watched purchasing managers' index (PMI) survey carried out by IHS Markit.

As well as Italy, the economic mood music in Europe is also coloured by lasting worries about whether a deal will be struck with Britain to avoid an economically catastrophic "no-deal" Brexit and the ongoing trade spat with the United States.

But a commission spokesman put a positive spin on the figures, pointing out that they showed the "22nd consecutive quarter of expansion".

"Although the pace of growth has shifted into a lower gear, the fundamentals for sustained growth remain in place," Christian Spahr told reporters in Brussels.