The eurozone’s slowdown was broader than previously suspected in the three months through September, fresh figures show, affecting sectors as diverse as farming, construction and a range of services.
That is likely to make policy makers at the European Central Bank, and the eurozone’s broader economic leadership, a little less hopeful going into 2019, because fragility was evident far away from the automobile factories of Wolfsburg and Turin.
The European Union’s statistics agency lowered its estimate for eurozone third-quarter growth to 0.6% from 0.7% on Friday, leaving it further adrift of the U.S. economy, which grew at a 3.5% during the same period. It was the eurozone’s weakest quarter since early 2013, with gross domestic product having increased by 1.7% in the three months through June.
Agricultural output fell and construction slowed, as did activity across trade, transport, accommodation and food services. The only one of the nine economic segments to record a pickup was real estate.
The figures challenge the conventional understanding of what happened to the eurozone economy in the last quarter. That understanding, shared widely by economists and policy makers, saw the automobile industry as the cause of the slowdown, with holdups in certifying model types for compliance with new emission standards holding back output. One implication was that the economy was likely to bounce back as automobile output returned to normal.
ECB policy makers haven’t panicked at the third-quarter performance, seeing it largely as a one-off that will be reversed. They have signaled an intention to end their bond-buying program in December, a first step toward raising its key interest rate for the first time since 2011, something it has said it won’t do until the end of summer 2019 at the earliest.
“The bank is likely to leave the door open to delay the first interest rate hike if growth were to remain subdued in the first half of next year,” said Pepijn Bergsen, an economist at Capital Economics.
Eurostat’s new figures suggest automobile production will pick up gradually, rather than surge as 2018 comes to an end. The statistics agency recorded a large buildup in stocks during the third quarter, most likely the result of new vehicles piling up at factory parking lots. Running down those stocks may hit current and future production.
The figures confirmed that two of the eurozone’s three largest economies—Germany and Italy—contracted during the quarter. Both have sizable automobile industries and between them account for 45% of the eurozone’s economy.
The eurozone’s main bright spot was Greece, long its weakest member, which saw its growth rate more than double during the quarter.
Recent business surveys suggest any fourth-quarter rebound is likely to be modest and that the eurozone economy will have slowed significantly over 2018. The ECB’s economists will publish new forecasts this month, when they may lower their growth projections for coming years.
Developments that may slow growth further are piling up, including the possibility of a disorderly departure from the European Union by the U.K., and a long standoff between Italy’s government and the EU over the former’s budget plans. Plus, the course of a series of trade disputes remains uncertain.
Write to Paul Hannon at email@example.com