Germany posts surprise growth in boost for eurozone economy

France and Spain report slower growth while inflation soars in Italy

Germany's export-driven economy grew by 0.3 per cent in the third quarter. AFP
Beta V.1.0 - Powered by automated translation

Germany's economy grew unexpectedly in the third quarter of this year, in a boost for the eurozone amid fears of a recession.

The picture was mixed in other European economies, with France and Spain reporting slower growth while Sweden beat expectations.

Inflation hit 11.9 per cent in Italy, driven by soaring energy costs, and 6.2 per cent in France, despite electricity prices being held down.

Fears of a slowdown grew after the European Central Bank raised its three key interest rates on Thursday and signalled further rises were coming.

But Germany, Europe's biggest economic powerhouse, “managed to hold its ground” in the third quarter despite the effects of the war in Ukraine and supply chain problems, officials said on Friday.

Germany's 0.3 per cent expansion, following 0.1 per cent growth in the second quarter, meant its economy is now bigger than before the pandemic for the first time.

Economists had forecast a contraction as households rein in their spending, with inflation at the highest level since reunification in 1990.

But German business sentiment has improved slightly following gloomy predictions for the flagship car and chemicals sectors.

France was on a negative trend after reporting 0.2 per cent growth, down from 0.5 per cent growth recorded in the second quarter.

Although French manufacturing was steady, household consumption was flat and exports slowed for a third consecutive quarter.

Rising costs have led to industrial unrest in France despite a relatively low level of inflation. AP

France has one of Europe's lowest inflation rates after ordering state-owned electricity provider EDF to take an €8.4 billion ($8.36bn) hit to limit price rises.

Nonetheless, inflation was tipped to rise to 6.2 per cent by the end of this month and to hit double figures for food and energy costs.

Rising costs and ballooning profits for energy companies have led to social unrest and strikes at oil refineries in France.

Spain also saw slower growth, with a 1.5 per cent expansion in the spring followed by just 0.2 per cent in the latest figures.

But there was better news on Spanish inflation, which eased to 7.3 per cent from 10.8 per cent in July.

It was a different story in Italy, where inflation soared from 8.9 per cent to 11.9 per cent.

The main driver was a 73.2 per cent increase in energy costs, but food prices also rose by an above-average 13.1 per cent.

It adds to the difficult economic picture facing new Prime Minister Giorgia Meloni's government, which came to power promising to tame energy prices.

European Central Bank chief Christine Lagarde said a recession was on the horizon. Bloomberg

Sweden meanwhile reported 0.7 per cent growth in the third quarter, defying expectations of a contraction.

“Swedish GDP bounced up in September following an August dip,” said Mattias Kain Wyatt, an economist at Statistics Sweden.

ECB President Christine Lagarde said on Thursday that the prospect of a recession was “looming much more on the horizon” in the eurozone.

But she said the bank was sticking to its job by raising interest rates even as governments around Europe try to ease the pain of rising prices.

Germany last month announced a package of up to €200 billion in relief, angering some neighbours who could never afford such an intervention.

Ms Meloni said her government would have another go at drawing up a windfall tax introduced by her predecessor Mario Draghi, which produced disappointing revenue.

In France, President Emmanuel Macron's government will cap energy prices again next year but allow them to rise by 15 per cent rather than 4 per cent.

Updated: October 28, 2022, 12:03 PM