Improvement in eurozone as Germany, France skirt recession

(BRUSSELS) - The economic clouds over Europe appeared to lift slightly in the third quarter as its two biggest economies both narrowly escaped a new recession, official data showed on Friday.

Overall the eurozone grew by just 0.2 percent, a still worryingly low figure, but a slight acceleration from the standstill reported originally for the previous quarter.

The data from the EU's Eurostat agency was an improvement, but will do little to dispel fears that problems in Europe, which include low inflation and stalled reforms, could spread to the world economy.

"The eurozone is having an almighty struggle to develop even modest growth momentum," said Howard Archer, chief European economist for IHS Global Insight.

"Heightened geopolitical tensions, particularly related to Russia and Ukraine, have weighed down on confidence and investment across the eurozone, reinforcing ongoing challenging conditions in many countries," he said.

- Turnaround in Germany, France -

In Germany, Europe's economic powerhouse, gross domestic product (GDP) expanded by 0.1 percent in the period from July to September, after shrinking by 0.1 percent in the preceding three months.

And in Paris, the French economy grew by 0.3 percent in the third quarter, following a contraction of 0.1 percent in the second quarter.

Since recession is technically defined as two consecutive quarters of falling GDP, both countries avoided a new recession.

In Germany's case, positive impulses came primarily from private households, which ramped up their spending, the official Destatis agency said.

In addition, foreign trade also helped, with exports rising more strongly than imports, it said.

- 'Growth too weak' -

In Paris, France's Finance Minister Michel Sapin said that while the figure was higher, the growth remained "too weak to ensure the job creation our country needs."

With growth in both countries still very modest, however, analysts were cautious about the outlook for the eurozone.

Berenberg Bank economist Christian Schulz said that the usually strong Germany "remained a key drag" with the crisis in Ukraine affecting it "and other central European countries more than Western European countries".

"Once this and other external risks fade, Germany will resume its economic leadership role," he said.

Italy, the bloc's third biggest economy, remained stuck in recession in the third quarter, contracting 0.1 percent after sliding 0.2 percent in the previous three-month period.

Economist Paolo Mameli said the latest figures for Italy suggested a forecast rebound in 2015 would be very weak.

"For a real recovery, we'll have to wait until 2016," said the Intesa Sanpaolo analyst.

The poor data landed the same day as anti-austerity protests were staged in around 25 Italian towns and cities, turning occasionally violent.

Protesters opposed government plans to kickstart growth by pushing through EU-backed labour reforms, with clashes in Milan and Padova leaving a total of eight members of the security forces injured.

- 'Still on track' -

The picture for bailed-out eurozone countries that have adopted major structural reforms was mixed.

The end of recession was confirmed in Greece, which grew by 0.7 percent in the third quarter.

Data was not yet available for Ireland, but in the second quarter it was set to roar ahead with 6.5 percent annual growth, way above the 0.8 percent estimated for the eurozone.

Portugal disappointed with just 0.2 percent quarterly growth even after a huge wave of reforms.

Cyprus, the last country to receive an EU-IMF bailout, meanwhile continued a painful recession with a 0.4 percent contraction.

The European Commission said "the recovery was on track but still too slow and fragile" and urged reforms.

The EU's executive arm is also looking to a mooted 300 billion euro ($374 billion) investment plan to boost growth, a key plank of Commission head Jean-Claude Juncker's incoming team, which took office on November 1.

Loynes of Capital Economics warned growth was "still nowhere near strong enough" to reinvigorate the economy and "diminish the risks of deflation".

Those risks remained alive, with Eurostat also confirming that inflation in the eurozone stood at a low 0.4 percent in October.

GDP up by 0.2% in the euro area and up by 0.3% in the EU28 [Eurostat]