Germany just dodges recession

November 14, 2014

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange

After European Central Bank chief Mario Draghi managed to bring his colleagues into line to sign up to his 1 trillion euros or so target to push into the ailing euro zone economy, today sees a raft of third quarter GDP reports which are likely to show just why more help may be needed.

The German and French figures are just out and while they don’t make pretty reading they could have been worse.

Germany narrowly avoided recession, growing by just 0.1 percent in the third quarter of the year having shrunk a revised 0.1 percent in the second quarter.

France grew 0.3 percent in Q3 after a downwardly revised 0.1 percent contraction in Q2. President Francois Hollande’s government expects growth of just 0.4 percent for the year, less than half its initial forecast.

Spain has already reported reasonable 0.5 percent growth on the quarter and few if any of its peers are likely to better that. S&P is due to review Spain’s credit rating today.

Reuters polling has produced a consensus forecast of 0.1 percent growth in the euro zone as a whole, matching the paltry second quarter performance. We will know at 1000 GMT.

Paris and Rome have been pressing the EU to focus more on measures to boost growth rather than cut debt in order to prevent a slide back into recession and to buy them time to push through structural economic reforms. Germany is not keen.

That debate is likely to flare as G20 leaders gather in Brisbane for their annual summit. U.S. Treasury Secretary Jack Lew gave an unusually blunt assessment of what he thinks Europe needs to do this week, saying France and Italy should rein in budget deficits more slowly and that it was “critical” Germany and Netherlands loosen their fiscal purse strings.

With the Bank of Japan, and to a lesser extent the ECB pursuing expansionary policies which should have the by-product of weakening the yen and euro, are we entering a new era of competitive devaluations? It’s too early to cause a big row just yet – not least because the rest of the world has urged Japan and Europe to do more to reflate their economies. But it bears watching.

The Swiss franc hit a 26-month high against the euro this week, inching closer to the Swiss National Bank’s cap, which it has pledged to hold since Sept. 2011. It has generally done so without needing to intervene. It may soon have to show its mettle.

The Scottish National Party’s annual conference begins today. The party faces the unusual position of having seen its support soar since it lost the independence referendum in September. So strong is its resurgence that it threatens to take any number of UK parliamentary seats from Labour at next May’s general election, imperilling its chances of taking power.

Alex Salmond, who resigned as leader after the referendum defeat, has suggested the SNP could support a Labour government in Westminster but could not join a coalition dominated by the Conservatives.

In Australia for the G20 summit, Britain’s David Cameron has threatened Russia with further sanctions after NATO said Russia had sent more troops into eastern Ukraine. European Union foreign ministers meet in Brussels on Monday but German Chancellor Angela Merkel has ruled out further economic sanctions for now. No decision is likely until EU leaders meet for a summit in mid-December.

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