Sun, Nov 14, 2004 - Page 10 News List

Eurozone growth outlook turns somber

LOSING MOMENTUM Economists said soaring oil prices and the appreciation of the euro against the dollar left the EU no choice but to tone down its growth forecast


European economic growth slowed sharply in the third quarter due to the strength of the euro and high oil prices, casting a pall over the prospects for the eurozone in the quarters ahead.

The economic outlook for the 12-nation eurozone darkened on Friday as the EU's executive commission trimmed its euro-area growth forecast for the final three months of this year and early next year. Separately, the statistics agency Eurostat said momentum slowed to 0.3 percent in the third quarter of this year.

The commission predicted that the economy of the eurozone would expand in a range of 0.2 to 0.6 percent in the fourth quarter this year and in the first three months of next year.

It said last month that growth in the two periods would be between 0.3 and 0.7 percent.

Eurostat meanwhile reported that growth in the eurozone slowed to 0.3 percent in the third quarter from 0.5 percent in the second and 0.7 percent in the first. Analysts had been expecting growth in the quarter of 0.4 percent. Yearly growth, comparing this year's third quarter with that of last year, was 1.9 percent in the eurozone and 2.1 percent for the full 25-member EU.

The EU as a whole had growth of 0.3 percent in the third quarter after 0.6 percent in the second and 0.7 percent in the first, according to Eurostat.

UBS economist Stephane Deo said the eurozone figures were the result of soaring oil prices and the appreciation of the euro against the dollar, which is hovering near a record high US$1.30-dollar level.

"The problem is to know whether it's short term or whether we are going to have weak growth at the beginning of next year," Deo said.

"However, what we believe is clear is that given the very low level of growth in the second half of this year, 2005 growth is very likely to be below the 2004 average," he said.

Goldman Sachs economist Javier Perez de Azpillaga said the slowdown in third-quarter growth had been apparent since early last month.

Both he and Deo said the breakdown of the figures, to be released later this month, would indicate the gravity of the slowdown.

"With export expectations still buoyant, a moderate resumption of consumer spending could suffice to push up growth in the fourth quarter," Perez de Azpillaga said, forecasting a 0.5 percent rise from the third quarter.

He said however that the risks were on the downside.

"High oil prices and euro strength complicate the short- and long-term outlook," he said.

Adding to the weak figures from Brussels, eurozone heavyweights France and Germany have also reported weak growth figures in the last two days.

French gross domestic product grew by just 0.1 percent in the third quarter from the second, well below an estimation of 0.5 percent, figures released on Friday by the national statistics institute INSEE showed.

Analysts had forecast third-quarter GDP growth of 0.4 percent.

The French figures followed a report on Thursday that Germany, the largest economy in the 12-nation eurozone, also posted growth of just 0.1 percent in the third quarter.

The German data showed that modest recovery of the German economy sputtered in the third quarter as exports, previously the main driving force behind growth of the eurozone's biggest economy, slumped on the back of the global economic slowdown. The figure was the slowest rate of growth of the German economy since the second quarter of last year, the final quarter of the last recession.

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