Trade prevents a deeper euro zone downturn

BRUSSELS Thu Dec 6, 2012 5:47pm IST

Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 2012. REUTERS/Fabian Bimmer

Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 2012.

Credit: Reuters/Fabian Bimmer

Border Security Force (BSF) soldiers ride their camels as they rehearse for the "Beating the Retreat" ceremony in New Delhi January 27, 2015. REUTERS/Ahmad Masood

"Beating The Retreat" Rehearsals

Rehearsals are on for "Beating the Retreat" ceremony which symbolises retreat after a day on the battlefield, and marks the official end of the Republic Day celebrations.  Slideshow 

BRUSSELS (Reuters) - German exports of cars and machinery helped shield the euro zone from a deeper recession in the third quarter while companies emptied warehouses and cut investments, showing the role of trade in driving any recovery.

Confirming a 0.1 percent contraction in output for the July-to-September period, the EU's statistics office Eurostat said on Thursday that exports were the only sector to make a significant contribution to growing the economy.

The reading, which confirms Eurostat's November 15 first estimate, showed the 17-nation bloc was in its second recession since 2009, the result of stagnant government spending and household consumption, and a lower contribution from investment and inventories in the quarter.

Struggling to emerge from its public debt and banking crisis, the euro zone relied on exports of goods such as German cars to China to provide a 0.4-percentage point contribution to gross domestic product, and that trend is set to continue.

"Trade and the end of the uncertainty surrounding the euro zone's future are the two things that will bring the bloc out of recession," said Christoph Weil, an economist at Commerzbank.

"We expect the global economy to pick up and that will give more momentum to euro zone exports," he said, forecasting growth of 0.5 percent for Germany next year, but none for the euro zone.

With euro zone unemployment at a record high and the single currency area divided about how to resolve a banking crisis brought on by the 2008/2009 global financial crisis, companies and households are reluctant to spend while governments are cutting to bring down their budget deficits.

But a slowly recovering U.S. economy and strong Chinese demand mean German exports - which account for 40 percent of the euro zone's total foreign sales - still have a market even as demand in indebted southern Europe shrivels.

German exports grew 5 percent January-to-August, the latest period for which data was available, driven by machinery and vehicles. Sales of luxury BMW cars jumped by over 14 percent in September thanks to booming growth in Asia.

That has not been lost on the European Union's member countries, which agreed last week to start discussions with Japan on a free-trade deal, part of an EU strategy to reach trade accords with the world's biggest economies, including Canada and the United States.

"Every tariff we remove, even the lowest ones, will result in millions of euros of savings to companies, money that can then be ploughed back into creating new opportunities," the EU's trade chief Karel De Gucht said in a speech on Wednesday.

WORST STILL TO COME?

Eurostat's figures showed the malaise at home even in Germany, showing how Europe's biggest economy has succumbed to the three-year debt crisis, at least for now.

The German and French economies managed just 0.2 percent growth in the third quarter, while Belgium stagnated. The year-long recession in Italy and Spain, the euro zone's third and fourth largest economies, continued in the quarter.

The Netherlands registered the biggest drop in the quarter, falling 1.1 percent compared to the previous three-month period.

Economists and policymakers are divided over whether the worst is still to come for the bloc, which generates a fifth of global output.

The European Commission sees modest, 0.1 percent growth next year, while the OECD and many investment banks see the recession continuing into 2013, which would drive up already record levels of unemployment and drag on the rest of the world's output.

The European Central Bank may lower its projections for growth at its meeting on Thursday, economists say.

At the very least, the pace at which business activity is falling may be slowing. Surveys showed an easing in the rate of contraction in euro zone services activity in November, with the shrinkage in manufacturing moderating to a seven-month low.

Concerns of a break-up of the euro zone have been quietened by the ECB's plan to buy the bonds of governments in trouble to prevent borrowing costs reaching unaffordable levels.

In line with improving sentiment, the fall in investment in the euro zone was less in the third quarter than it was in the second, Eurostat data showed, although a separate Commission report showed that industry expects to cut investment by 1 percent next year.

(Reporting by Robin Emmott; Editing by Rex Merrifield and Catherine Evans)

Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Reuters Showcase

Vodafone Ruling

Vodafone Ruling

Government will not appeal Vodafone tax ruling   Full Article 

Indian Railways

Indian Railways

Private refiners compete with state firm to sell diesel to railways   Full Article 

Ranbaxy Results

Ranbaxy Results

Dec-quarter net loss widens on forex loss  Full Article 

Market Eye

Market Eye

Sensex, Nifty retreat from record highs on profit-taking.  Full Article 

Tech Talk

Tech Talk

Apple takes high road in China smartphone standoff with Xiaomi.  Full Article 

Business Strategy

Business Strategy

Uber scraps commissions for its New Delhi taxis.  Full Article 

Job Cuts

Job Cuts

Sony to cut 1,000 jobs in smartphone business - sources.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage