Eurozone growth runs out of steam as Italy fears grow

As concerns over Rome's budgetary plans rise, economic sentiment also drops in the bloc for the tenth consecutive month, and by more than expected by economists

The single-currency bloc is losing economic momentum this year. Reuters

The eurozone grew much less than expected in the third quarter and economic confidence continued to fall, official estimates showed on Tuesday, as signs of distress became more evident in Italy, the bloc's third biggest economy.

The European statistics office Eurostat said economic growth in the 19 countries sharing the euro slowed to 0.2 per cent in the third quarter against the previous three months, after a 0.4 per cent expansion in the second quarter.

Year-on-year eurozone growth slowed to 1.7 per cent from 2.2 per cent in the second quarter. Economists polled by Reuters had expected a 0.4 per cent quarterly expansion and a 1.8 per cent year-on-year rise.

Eurostat does not provide national data in its flash estimates, but figures released earlier on Tuesday by the Italian statistics agency showed Italy's growth had halted in the third quarter amid a row with the EU over the country's budget for next year.

In a separate release, the European Commission said on Tuesday economic sentiment dropped in the eurozone for the tenth consecutive month, and by more than expected by economists.

The indicator, that shows managers and consumers' morale, fell to 109.8 points in October from 110.9 in September in its biggest dip since March.

Although it remains above the long-term average, the indicator has been falling since the beginning of the year after having risen steadily in 2017, Reuters said.

In October the largest fall was recorded in retail services as managers held "much grimmer views on the present and expected business situation", the commission said and the indicator of selling price expectations dropped.

Confidence in industry and services also went down, while consumer sentiment grew slightly on improved savings expectations.

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Temporary factors may have had some part to play in the third-quarter underperformance. German output was dampened by car makers’ failure to adapt to new emissions tests and a slowdown in construction, and the Bundesbank has said the growth break “shouldn’t be long-lasting”. Kuka cut its revenue forecast on Monday, citing a slowdown in the automotive industry as well as uncertainty in China, according to Bloomberg.

Italy’s economy also stalled in the third quarter on weakness in the industrial sector, prompting Banque Pictet’s Frederik Ducrozet to say there’s “material risk” of a triple-dip recession. In France, growth accelerated, rebounding from a sluggish first half, though it fell short of the median estimate.

Industrial confidence in the eurozone fell the most since March as companies’ assessment order books deteriorated. Sentiment in services was damped, among other things, by expectations for demand.

More hints on the region’s economic health will come Wednesday, when reports are set to show a steady unemployment rate and a rise in inflation. Faster price growth, especially in the measure that strips out temporary factors, would confirm the ECB’s claim that the bloc is strong enough to withstand a gradual withdrawal of monetary support.

Outside the eurozone, Britain recorded a slight increase of economic sentiment, driven up by more optimism in retail trade and services which more than offset a fall in industry confidence.