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HOW GOOD WAS EUROPE’S GDP?

A smattering of analyst opinions courtesy of the WSJ:

The disappointment was wide spread with most major economies underperforming. Quite where the weakness stems from is difficult to identify as we only have component data from France. However part of the story appears to be renewed weakness in consumption. Another negative contribution from inventories may also be a part of the story, which is also slightly surprising given the recovery in capital and intermediate goods we have seen in the production data. – James Nixon, Société Générale.

The Euro Zone economy has officially turned the corner and that is cause for relief, but not celebration. The economy remains in a fragile state, and is recovering mainly because of government stimulus and temporary inventory effects. […] even if the economy continues to recover at the current pace, it would still take until 2012 before real GDP returns to its pre-crisis level. The Euro Zone’s worst post-war recession may be officially over, but unfortunately for many people and businesses it will continue to feel like a recession for some time to come. – Martin van Vliet, ING Financial Markets.

The good news is that a broader range of countries returned to expansion in the third quarter. The less encouraging development is the apparent weakness of consumption that is coming through as the car scrappage schemes start to fade. We expect the impact of the schemes to wane further in the fourth quarter but this is likely to be partly mitigated by continued support from net exports as exports strengthen and imports remain muted. – Janet Henry, HSBC.

The European Central Bank faces the major challenge of balancing a return to growth in the stronger large eurozone economies with ongoing weakness in economies like Spain, Greece and Ireland. Moreover, difficult decisions lie ahead in order to return public finances across the eurozone to health. Fiscal tightening next year is likely to put some brakes on the recovery, so we expect the ECB to keep rates on hold at 1% until mid 2010. – Charles Davis, Center for Economic and Business Research.

The Euro Zone exited recession at a trot rather than a canter in the third quarter with GDP growth of 0.4% quarter-on-quarter. … Eurostat is yet to release a component breakdown of Eurozone GDP in the third quarter of 2009, but it is evident from all of the countries that have released data that a marked increase in exports contributed significantly to the return to growth – although the positive impact from net trade was limited by higher imports. – Howard Archer, Global Insight

No one should get carried away by today’s figures.
We were always likely to see a boost to GDP growth in the third quarter, reflecting the various car scrappage schemes that have been put in place across the euro area – Germany’s subsidies, in particular, amounted to €5bn. The problem is, this spur to growth is now likely to fade, and even reverse, in the months ahead. This is because the car scrappage schemes … do not generate new spending that would never have happened without the schemes. Instead, they encourage households to bring forward purchases that they would eventually made anyway. – Colin Ellis, Daiwa Securities SMBC Europe

Even though at euro zone 3Q GDP [was just] below our and consensus expectations, today’s data can be considered a disappointment. We were, in fact, convinced that risks to our call were tilted squarely to the upside. While Germany (0.7% qoq) and Italy (0.6% qoq) were very much in line with our forecasts, France was the swing factor with a major negative surprise (only 0.3% vs. our expectation for 0.9%). The fact that the euro area exited the recession after five consecutive quarters of contraction is today’s good news. – Aurelio Maccario, UniCredit Group

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