- Euro area GDP grew 0.2% q/q in Q3 in line with expectations. The growth was driven by the core countries. German GDP increased 0.5% q/q while France grew 0.4%. The peripheral countries weighed down on growth in Q3.
- Looking ahead we think the euro area is heading for recession with a sharp drop in GDP growth of 0.3% q/q in Q4. We forecast a mild recession, but it could become severe if politicians fail to control the debt crisis. We do not expect a repeat of 2009.
Still growth in Q3:
Euro area GDP grew 0.2% q/q in Q3 in line with expectations (consensus 0.2%, Danske 0.2%). This was unchanged relative to the Q2 growth rate. Growth was driven by the core area, while the peripheral countries weighed down on growth. Despite stock markets plunging in late summer and leading indicators beginning to deteriorate, hard data remained relatively resilient during Q3. Industrial production did not give in before September despite the drop in orders setting in before. Also retail sales increased until September. Eurostat does not provide details on the flash GDP numbers.
...but the euro area is heading for recession:
The economic outlook continues to deteriorate as euro area leaders have so far failed to contain the debt crisis. The continuation of the elevated risk environment is now causing a euro area recession. PMIs in particular have dropped sharply, but hard data such as euro area retail sales and industrial production has also started to give in. These indicators point clearly towards negative growth in Q4. We expect a negative reading of 0.3% q/q in Q4 and another slight decrease of 0.1% in Q1 12 before returning to positive growth rates in the remainder of 2012. Hence, the euro area is heading for mild (technical) recession. We expect the growth rate in 2011 to be 1.6% and only 0.3% in 2012.
Germany: Strong growth and upward revision of Q2:
German GDP increased 0.5% q/q in Q3 and Q2 growth was revised to 0.3% from 0.1% previously. German industrial production increased until September when we saw a sharp drop. The Q2 number is better aligned with the signals from the leading indicators such as Ifo that was around an all-time high during Q2. Industrial orders indicate a further decline in the coming months. German companies have reacted by cutting inventories, which will deepen the contraction. We expect German GDP to contract 0.3% in Q4.
France: Rebound in Q3 after negative growth in Q2:
French GDP rebounded in Q3 to a growth rate of 0.4% q/q. The Q2 figure was revised down to -0.1% q/q from 0.0%. In particular, household consumption improved in Q3 to a growth rate of 0.3% q/q after a drop of 0.8% in Q2. Also public sector consumption increased. Gross fixed capital formation rose 0.4% in Q3. Looking forward, we expect French GDP to shrink in Q4.