On Air Now

Upcoming Shows

Program Schedule »

Tune in to Listen

650 AM Hibbing, Minnesota

Weather

Current Conditions(Hibbing,MN 55746)

More Weather »
68° Feels Like: 68°
Wind: N 17 mph Past 24 hrs - Precip: 0.19”
Current Radar for Zip

Today

Partly Cloudy/Wind 75°

Tonight

Mostly Clear 52°

Tomorrow

Partly Cloudy 75°

Alerts

Trade prevents a deeper euro zone downturn

Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 20
Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 20

By Robin Emmott

BRUSSELS (Reuters) - German exports of cars and machinery helped shield the euro zone from a deeper recession in the third quarter while companies emptied warehouses and cut investments, showing the role of trade in driving any recovery.

Confirming a 0.1 percent contraction in output for the July-to-September period, the EU's statistics office Eurostat said on Thursday that exports were the only sector to make a significant contribution to growing the economy.

The reading, which confirms Eurostat's November 15 first estimate, showed the 17-nation bloc was in its second recession since 2009, the result of stagnant government spending and household consumption, and a lower contribution from investment and inventories in the quarter.

Struggling to emerge from its public debt and banking crisis, the euro zone relied on exports of goods such as German cars to China to provide a 0.4-percentage point contribution to gross domestic product, and that trend is set to continue.

"Trade and the end of the uncertainty surrounding the euro zone's future are the two things that will bring the bloc out of recession," said Christoph Weil, an economist at Commerzbank.

"We expect the global economy to pick up and that will give more momentum to euro zone exports," he said, forecasting growth of 0.5 percent for Germany next year, but none for the euro zone.

With euro zone unemployment at a record high and the single currency area divided about how to resolve a banking crisis brought on by the 2008/2009 global financial crisis, companies and households are reluctant to spend while governments are cutting to bring down their budget deficits.

But a slowly recovering U.S. economy and strong Chinese demand mean German exports - which account for 40 percent of the euro zone's total foreign sales - still have a market even as demand in indebted southern Europe shrivels.

German exports grew 5 percent January-to-August, the latest period for which data was available, driven by machinery and vehicles. Sales of luxury BMW cars jumped by over 14 percent in September thanks to booming growth in Asia.

That has not been lost on the European Union's member countries, which agreed last week to start discussions with Japan on a free-trade deal, part of an EU strategy to reach trade accords with the world's biggest economies, including Canada and the United States.

"Every tariff we remove, even the lowest ones, will result in millions of euros of savings to companies, money that can then be ploughed back into creating new opportunities," the EU's trade chief Karel De Gucht said in a speech on Wednesday.

WORST STILL TO COME?

Eurostat's figures showed the malaise at home even in Germany, showing how Europe's biggest economy has succumbed to the three-year debt crisis, at least for now.

The German and French economies managed just 0.2 percent growth in the third quarter, while Belgium stagnated. The year-long recession in Italy and Spain, the euro zone's third and fourth largest economies, continued in the quarter.

The Netherlands registered the biggest drop in the quarter, falling 1.1 percent compared to the previous three-month period.

Economists and policymakers are divided over whether the worst is still to come for the bloc, which generates a fifth of global output.

The European Commission sees modest, 0.1 percent growth next year, while the OECD and many investment banks see the recession continuing into 2013, which would drive up already record levels of unemployment and drag on the rest of the world's output.

The European Central Bank may lower its projections for growth at its meeting on Thursday, economists say.

At the very least, the pace at which business activity is falling may be slowing. Surveys showed an easing in the rate of contraction in euro zone services activity in November, with the shrinkage in manufacturing moderating to a seven-month low.

Concerns of a break-up of the euro zone have been quietened by the ECB's plan to buy the bonds of governments in trouble to prevent borrowing costs reaching unaffordable levels.

In line with improving sentiment, the fall in investment in the euro zone was less in the third quarter than it was in the second, Eurostat data showed, although a separate Commission report showed that industry expects to cut investment by 1 percent next year.

(Reporting by Robin Emmott; Editing by Rex Merrifield and Catherine Evans)

Comments