The Strategist

Italy and Germany slow down European GDP rate

10/31/2018 - 11:51

The European statistical agency Eurostat presented data on the dynamics of euro zone GDP for the third quarter of the year. The economy’s growth was only 0.2% compared with the previous quarter, which is the lowest rate since 2014. Experts attribute the decline in economic activity in the euro zone to the slowing economy in Italy, as well as the decline in industrial production in Germany explained by new emission requirements for cars.

ell brown via flickr
ell brown via flickr
The Eurostat data on the dynamics of GDP in the euro area (19 countries) and the entire European Union (28 countries) showed a serious slowdown in the European economy. In the third quarter, eurozone GDP grew by 0.2% qoq, while EU GDP rose by 0.3%. In the second quarter, GDP grew by 0.4%, while EU GDP grew by 0.5%. The dynamics of the euro zone in the third quarter showed a record low since 2014 and turned out to be worse than analysts' forecasts polled by Reuters, who expected that in the third quarter, eurozone GDP would keep growing at 0.4%. On an annualized basis, GDP dynamics also slowed down significantly - 1.7% for the euro area and 1.9% for the EU, compared with 2.2% and 2.1%, respectively, in the second quarter. After the publication of GDP data, the euro/dollar rate fell by 0.13% to $ 1.14.

Experts note that the slowdown in economic activity in the euro zone is caused by the zero growth of Italian GDP in the third quarter and problems with industrial production in Germany. The zero dynamics of Italy’s GDP, in the opinion of its current Prime Minister Giuseppe Conte, confirms correctness of the Italian government, which intends to spend more from the budget to stimulate the economy. The Prime Minister announced this on his Facebook page. Recall, the populist government that came to power in Italy this included a deficit of 2.4% in the 2019 budget, arguing that it was necessary to stimulate the domestic economy. This caused a conflict with the European Commission, because the previous government of Italy planned three times less budget deficit - 0.8%. The growing conflict between the government of Italy and the European Commission has already led to the fall of European stock indexes last week.

Another reason for the slowdown of the European economy in the third quarter, experts say, is the decline in auto production in Germany. After the EU introduced new standards for certification of vehicles for harmful emissions due to the scandal around Volkswagen, German automakers are forced to restructure their enterprises, which, in turn, slows the production down. In September of this year, the number of new car registrations in Germany fell by 30% compared with September last year.

Analysts at the British bank HSBC note that the dynamics of the European economy in the third quarter was the weakest since the ECB began to reduce quantitative easing, i.e. buyback of bonds from the market for financial stimulation of the European economy. “Euro zone growth is slowing faster than we expected,” FT analysts quoted, “This may be an indication of what the near future will be like when the ECB completely curtails the quantitative easing program.”