It seems that growth in the third quarter of the euro zone will be witnessed, after acceleration is witnessed in the largest two economies in the euro region, Germany and France, who represent 50% of euro zone's economy.
In the second quarter, Germany and France left the recession after recording positive 0.3% growth, causing contraction to ease in the euro zone to 0.2% from 2.5% in the first quarter; thanks to the wise intervention by the ECB and European national governments.
The ECB slashed the benchmark interest rate to 1% and started purchasing bonds worth 60 billion euros starting from July 6, to revive the economy and support it with liquidity. The quantitative easing methods also participated in increasing liquidity in markets and raised the general price level. Besides, On September 29 they offered to provide further liquidity for banks to spur lending and spending.
In addition, the global recovery participated in the increasing demand back again on goods and services. Since Germany is known to be the biggest exporter in the world in 2008, heavily relying on growth from overseas sales. Henceforth, the rebound in global demand boosted growth in the third quarter.
According to the German statistics office; exports and investment in equipment and construction were the catalysts for expansion in the third quarter. In addition, the surge in imports contributed in the rise in inventories, while private consumption, on the other hand, pulled growth down.
The German chancellor, Angela Merkel, launched a 85 billion euros plan to reinvigorate the economy, in addition to cutting taxes and putting stimulus to encourage the purchase of new cars. The gigantic economy in the euro zone is showing strong signs of recovery and is on the right track to recovery.
Consumer spending inclined due to restored confidence, which encouraged individuals to consume more goods and services; government spending on infrastructure increased; and exports showed improvement starting from the second quarter. All theses factors contributed in lifting growth in the largest economy in the euro zone.
Growth widened in the third quarter as indicated by the preliminary reading, which came in at 0.7% compared with the advanced 0.3% revised to 0.4%. On the annual basis, the contraction for the working days adjusted reading eased to -4.8% from the revised contraction of 5.8% contraction. As for the annual non-seasonally-adjusted reading, the contraction moderated to 4.7% from the revised contraction of 7.0%.
IW economic institute projects that the German economy will shrink 4.5% in 2009, before growing to 1.5% next year.
In France, GDP preliminary reading for the third quarter remained at 0.3%, similar to the second quarter's expansion. On the year, the reading showed a decline in contraction to 2.4% from the revised contraction of 2.9%. Growth remained as is on the quarter and contraction mitigated on the year, but the French economy did not show acceleration as the German economy.
By looking into details; we see that exports exceeded imports as it increased by 2.3% on the quarter; while household consumption, the main contributor of the French economy, lingered in the third quarter as it advanced 0.3%. On the other hand, investment dropped 1.4% from 1.2% fall recorded in the second quarter posted.
Today’s data may ramp up the process of unwinding stimulus measures from markets and embarking contractionary monetary and fiscal policies. However, we have to wait till the release of the GDP data for the euro zone, which is due at 10:00 GMT today.
