As France stalls, eurozone recovery comes to halt

By Leigh Thomas and Martin Santa ,Reuters

BRUSSELS/PARIS — The eurozone economy all but stagnated in the third quarter with France’s recovery fizzling out and slower expansion in Germany. The 9.5-trillion-euro economy pulled out of its longest recession in the previous quarter, record high unemployment, lack of consumer and market confidence continue to choke a more solid rebound. In the three months to September, the combined economy of the 17 countries sharing the euro grew by a slower-than-expected 0.1 percent. In the previous quarter it rose 0.3 percent — the first expansion in 18 months. The euro fell to a session low in reaction to Thursday’s news.

The French economy contracted by 0.1 percent, snuffing out signs of revival from robust growth in the previous three months. It had been expected to post quarterly growth of 0.1 percent and has now shrunk in three of the last four quarters. German growth slowed to 0.3 percent from a robust 0.7 in the second quarter, but Europe’s largest economy clearly remains in much better shape. Its performance matched forecasts. France is becoming a focus for concern within the currency bloc. The Bank of France predicts the economy will expand by 0.4 percent in the last quarter of the year but the government’s labor and pension reforms are widely viewed as too timid. “It was particularly disappointing to see France suffer a renewed dip of 0.1 percent quarter-on-quarter in GDP which highlights concern about its underlying competitiveness,” Howard Archer, an economist with IHS Global Insight, said. A report on French competitiveness by the Paris-based Organisation for Economic Cooperation and Development warned that it is falling behind Southern European countries that have cut labor costs and become leaner and meaner.

“To reduce the economic lag and lost time, France needs to keep up structural reforms,” OECD chief Angel Gurria said. The report will be hard for the government to ignore since it was commissioned by President Francois Hollande. German growth was fuelled by domestic demand. Exports faltered, another indication of the malaise gripping the rest of the eurozone. “Positive impulses came exclusively from inside Germany,” said the German Statistics Office. The European Commission forecasts the currency area will shrink by 0.4 percent over 2013 as a whole before growing by a modest 1.1 percent in 2014. It sees expansion accelerating to 1.7 percent in 2015. However, with unemployment in the bloc running above 12 percent and one in two young people out of work in Greece and Spain, talk of recovery rings hollow. Compounding the French gloom, private sector payroll data showed some 17,000 jobs were destroyed in the third quarter, while inflation slowed in October to 0.7 percent, the weakest level in four years, when France was emerging from a deep recession.