Germany Just Escapes Recession, France Beats Low Expectations

Merkel EU
Germany's Chancellor Angela Merkel addresses a news conference after a European Union leaders summit in Brussels October 24, 2014. Francois Lenoir/Reuters

Germany narrowly avoided recession in the third quarter of the year and France exceeded low expectations, putting the euro zone on course for anemic growth but no contraction.

Europe's largest economy eked out 0.1 percent growth from the previous three months following a revised 0.1 percent fall in the second quarter, the German statistics office said on Friday.

A strong rise in consumer spending and small boost from foreign trade prevented a worse result.

France expanded by 0.3 percent on the quarter, beating forecasts for 0.2 percent growth, marking its best performance in more than a year. But its second quarter was revised down to show a 0.1 percent fall in GDP.

Italy was not so lucky, subsiding by 0.1 percent and enduring the 13th quarter running without any growth.

It has been the euro zone's most sluggish economy for more than a decade and is the only large country in the bloc actually in recession - defined as two or more consecutive quarters of falling output.

Reuters polling has produced a consensus forecast of 0.1 percent growth in the euro zone as a whole, matching its paltry second-quarter performance. That figure is due at 1000 GMT (5 a.m. EST).

"Activity has somewhat taken off but remains too weak to create the jobs our country needs," French Finance Minister Michel Sapin said in a statement, reiterating his call for more action to boost growth and jobs in Europe.

Italy and France have been pressing the EU to focus more on measures to foster growth rather than cut debt in order to prevent a slide back into recession. Germany, the country with the current account surplus to spend more, will not budge.

That debate is likely to flare back into life as G20 leaders gather in Brisbane for their annual summit this weekend.

U.S. Treasury Secretary Jack Lew gave an unusually blunt assessment of what he thinks Europe needs to do this week, arguing that France and Italy should rein in budget deficits more slowly and that it was "critical" Germany and the Netherlands loosen their fiscal purse strings.

The Dutch economy grew 0.2 percent in the third quarter, a pace matched by Finland, while Slovakia raced ahead by 0.6 percent.

Spain has already reported steady 0.5 percent growth.

President Francois Hollande's government expects growth of just 0.4 percent for the whole year, less than half its initial forecast, and has said it would miss a pledge to bring its public deficit down to 3 percent of GDP next year.

The German government's panel of independent economic advisers cut its forecasts on Wednesday for growth in 2014 to 1.2 percent from a previous 1.9. It did not expect any acceleration next year, penciling in growth of just 1.0 percent.

Germany's Chamber of Commerce DIHK urged the government to change course and go for a more business-friendly policy. "That would help to lift the brake on investment," said DIHK managing director Martin Wansleben.

Germany Just Escapes Recession, France Beats Low Expectations | World