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Euro zone economic muscle weak as global storm gathers
February 12, 2016 / 10:23 AM / 2 years ago

Euro zone economic muscle weak as global storm gathers

BRUSSELS/FRANKFURT (Reuters) - The euro zone economy notched up modest growth in the final three months of last year, showing the bloc has little muscle to shrug off the globe’s mounting economic problems.

After a week where stock markets around the world plunged, the 19 countries using the euro failed to lift the gloom with data showing that growth of its gross domestic product was just 0.3 percent in each of the final two quarters of 2015.

This will add to pressure on the European Central Bank to ramp up its 1.5-trillion-euro money printing scheme to buy chiefly government bonds when governors meet in March. Having spent much of their firepower, however, options are limited.

The picture varied across the euro zone, which spans economically strong countries such as Germany in the north to Greece or Portugal in the south, both of which required financial rescues.

The bloc’s biggest member, Germany, posted steady economic growth in the final quarter of 2015, as higher state spending to cope with an influx of refugees and construction offset a drag from foreign trade.

Yet, Italy barely grew during the same period as domestic demand was slow. Economic output edged up a quarterly 0.1 percent at the end of last year.

“This is a weak recovery,” said Carsten Brzeski, an economist with ING. “The risk is that low growth means unemployment remains high and that anti euro parties gain momentum.”

The European Union’s statistics office Eurostat said gross domestic product rose 0.3 percent quarter-on-quarter in the last three months of last year, the same as between July and September.

A containership is pictured at the loading terminal Altenwerder in the harbour of Hamburg, Germany February 3, 2016. REUTERS/Fabian Bimmer

Year-on-year, the euro zone economy expanded 1.5 percent, also as forecast by economists. Yet the final six months of 2015 lagged the start.

FLAGGING INDUSTRY

The data painted a bleaker picture for European industry, from car-making to mining. Industrial output fell 1 percent month-on-month in December - a 1.3 percent year-on-year fall.

This was worse than expected by economists who had predicted a 0.3 percent monthly rise and a 0.8 percent annual increase in production.

Relative calm returned to world markets on Friday after a hurricane-force week that wiped billions off share prices and saw investors dash for shelter in top-rated government bonds and gold.

Japanese policymakers on Friday said they would seek a global policy response from G20 nations to world market turbulence, as the country’s central bank governor dismissed suggestions the rout was caused by the bank’s new negative interest rate policy.

Deep-rooted concerns remain, however, not least about the slowing in the one-time engine room of the globe’s economy, China.

“The trade engine has broken,” said a report by the Institute of International Finance, a group representing banks and financial groups.

“Asian economic growth will remain disappointing in 2016, and we see little chance of a significant rebound in trade ... the Chinese engine for Asian trade is unlikely to be reignited.”

Reporting by Jan Strupczewski; Editing by Robert-Jan Bartunek/Jeremy Gaunt

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