Expert View: Eurozone's Q3 'growth' figures make for grim reading

Third-quarter GDP figures for the eurozone published on Friday make for grim reading and underline the widening chasm between the macroeconomic reality and upbeat market sentiment, writes Nicholas Spiro.

The report by Eurostat, the EU's statistics office, shows GDP rose by 0.2% quarter-on-quarter in the euro area and up by 0.3% in the EU-28.

On a country level, Germany posted 0.1% GDP growth quarter-on-quarter. Thanks to government spending rather than a rebound in business, France showed a slight improvement with a growth rate of 0.3%. But Italy came in at -0.1%. The UK - and perhaps more surprisingly Greece - were the joint strongest performers of all 28 EU states with GDP growth of 0.7%.

ANALYSIS
The figures come just over a week after Nick Spiro warned in PropertyEU that the Gap between sentiment and fundamentals is dangerously wide.

This week, Spiro writes, the GDP figures make for further grim reading.

'When Germany - the main source of what little growth there has been in the eurozone since the crisis erupted in 2010 - performs worse than France, this says much about the breadth and depth of the weakness of the bloc's economy.

Germany, the eurozone's largest economy, barely avoided sliding back into recession. France, the bloc's second-largest economy, grew slightly mainly as a result of government spending, which is part of the problem in France. Italy, meanwhile, the eurozone's third-largest economy, contracted and remains in recession.

This is no soft patch - far from it. This is a prolonged period of severe economic stagnation, with little prospect of a meaningful and sustainable recovery any time soon.

The eurozone - and in particular France and Italy which stick out like sore thumbs in terms of the poor performance of their economies and hence the failure to undertake or at least make significant headway with proper fiscal and structural reforms - is now in a race against time. Can a proper recovery materialise before anti-establishment, populist and anti-German parties begin to lead in the polls - and possibly perform strongly in a general election?'

This already happened in Italy last year and is now a significant risk in Spain and in France, Spiro claims. 'Every weak economic indicator and political scandal - and there has been a surfeit of both for some time now - play into the hands of leaders like the National Front's Marine Le Pen in France and Podemos's Pablo Iglesias in Spain.

Indeed the politics of the eurozone crisis have become a vicious circle of late: the deeper the economic malaise, the more pressure there is on the ECB to launch full-blown QE. Yet the stronger the clamour for further monetary stimulus amid a dearth of meaningful reform in France and Italy, the stronger the appeal of the anti-euro Alternative for Germany (AfD) party and the more intense the pressure on Berlin to oppose any further stimulus.'

While Spiro remains very concerned about France, he said Italy is much more troubling.

'Even after having won an election in May and boasting the kind of popularity that French president Francois Hollande can only dream of, Italian premier Matteo Renzi - who at least is pushing ahead with a number of much-needed political and structural reforms - is struggling to turn Italy's economy around amid a renewed recession.

Italy is the perfect example of the underlying problem in the eurozone: a conspicuous lack of growth.'

Nicholas Spiro is the London-based managing director of Lauressa Investments