German, Italian Growth Add Fuel to Eurozone Recovery -- 2nd Update

By Nina Adam Features Dow Jones Newswires

The German and Italian economies moved up a gear in the third quarter, aided by an increase in demand for their exports, as the eurozone's $10 trillion economy remained on course for its strongest year since 2007.

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While Finland's economy also accelerated in the three months through September, there were slowdowns in France, Spain and the Netherlands, leaving the eurozone economy growing slightly more slowly than in the previous quarter.

The euro rose against the dollar after the data were released, and in midmorning trading was up 0.5%.

Germany's gross domestic product--the broadest measure of goods and services produced in an economy--grew at a quarter-to-quarter rate of 0.8% in the three months through September, or 3.3% in annualized terms, the Federal Statistical Office said Tuesday.

"The business backdrop is excellent, and we are actually struggling to meet the surge in orders," said Martin Kapp, the chief executive at Kapp Niles Group, a family-owned machine-tool manufacturer. "Following years of restraint, we've reached a point where companies just have to invest. And that's a global trend."

Germany's statistics body also significantly lifted its GDP growth estimate for the first quarter of this year to an annualized rate of 3.6% from an earlier estimate of 2.9%.

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"Even if the economy would stagnate in the final quarter of the year, GDP growth for the entire year would still come in at 2.4%, the highest reading since 2011," said Carsten Brzeski, an economist at ING.

Italy's economy--the eurozone's third largest--also performed more strongly than expected in the third quarter. According to national statistics institute Istat, Italy's GDP grew 0.5% in the third quarter compared with the previous one, while it increased 1.8% from the same quarter a year earlier. That was the largest rise year-to-year since the first three months of 2011.

Also Tuesday, the European Union's statistics agency confirmed its first estimates of GDP growth at 0.6% quarter-on-quarter, but raised its annualized measure to 2.5% from 2.4%, leaving it only marginally slower than the 2.6% recorded in the three months through June.

Germany has been driving the eurozone's economic recovery in recent years, but there are clear signs that the region's upswing is broadening and becoming more sustained.

Destatis said that third-quarter growth was led by an improvement in foreign trade amid rising demand for high-end tools and machinery. Mr. Kapp said that Chinese demand for machine tools has been particularly strong, but that Europe and the U.S. are also doing well.

The resilience of exports following the euro's appreciation this year will come as a relief to policy makers at the European Central Bank. They last month announced that they would cut their monthly bond purchases from January, a move that strengthened the euro. The ECB is trying to wean the eurozone economy off years of support without taking too much steam out of the recovery.

The German government's Council of Economic Advisers last week raised its economic growth forecasts for 2017 to 2% from an earlier estimate of 1.4%.

"The German economy is experiencing a major upturn," the council said in its annual report.

Following Tuesday's strong GDP showing, another upward revision may be in store, but more than six weeks after general elections, talks to form a new government are still under way and could drag into next year.

Chancellor Angela Merkel's conservatives are exploring a tie-up with the pro-business Free Democrats party and the Greens. Yet economists say that the prospects of major fiscal stimulus are slim.

Paul Hannon contributed to this article.

Write to Nina Adam at nina.adam@wsj.com

FRANKFURT--The German and Italian economies moved up a gear in the third quarter, aided by increased demand for their exports, as the eurozone's $10 trillion economy remained on course for its strongest year since 2007.

While Finland's economy also accelerated in the three months through September, there were slowdowns in France, Spain and the Netherlands, leaving the eurozone economy growing slightly more slowly than in the previous quarter.

The euro rose against the dollar after the data were released, and in midmorning trading was up 0.5%.

Germany's gross domestic product--the broadest measure of goods and services produced in an economy--grew at a quarter-to-quarter rate of 0.8% in the three months through September, or 3.3% in annualized terms, the Federal Statistical Office said Tuesday.

"The business backdrop is excellent, and we are actually struggling to meet the surge in orders," said Martin Kapp, the chief executive at Kapp Niles Group, a family-owned machine-tool manufacturer. "Following years of restraint, we've reached a point where companies just have to invest. And that's a global trend."

Germany's statistics body also significantly lifted its GDP growth estimate for the first quarter of this year to an annualized rate of 3.6% from an earlier estimate of 2.9%.

"Even if the economy would stagnate in the final quarter of the year, GDP growth for the entire year would still come in at 2.4%, the highest reading since 2011," said Carsten Brzeski, an economist at ING.

Italy's economy--the eurozone's third largest--also performed more strongly than expected in the third quarter. According to national statistics institute Istat, Italy's GDP grew 0.5% in the quarter compared with the previous one, while it increased 1.8% from the same period a year earlier. That was the largest rise year-to-year since the first three months of 2011.

Also Tuesday, the European Union's statistics agency confirmed its first estimates of GDP growth at 0.6% quarter-on-quarter, but raised its annualized measure to 2.5% from 2.4%, leaving it only marginally slower than the 2.6% recorded in the three months through June.

Germany has been driving the eurozone's economic recovery in recent years, but there are clear signs that the region's upswing is broadening and becoming more sustained.

Destatis said that third-quarter growth was led by an improvement in foreign trade amid rising demand for high-end tools and machinery. Mr. Kapp said that Chinese demand for machine tools has been particularly strong, but that Europe and the U.S. are also doing well.

The resilience of exports following the euro's appreciation this year will come as a relief to policy makers at the European Central Bank. They last month announced that they would cut their monthly bond purchases from January, a move that strengthened the euro. The ECB is trying to wean the eurozone economy off years of support without taking too much steam out of the recovery.

The ECB's bond purchases have been an especially welcome lifeline for Italy, which has been one of the eurozone's slowest growing economies since the financial crisis. Its economy is still 5.9% smaller than it was in 2008.

Italy's acceleration in the third quarter will therefore also be welcomed by the ECB as it prepares to ease back on its stimulus measures. But economists warn that Italy has failed to take big steps on changes such as cutting red tape and reducing the cost of labor.

Germany's prospects seem more sure. The German government's Council of Economic Advisers last week raised its economic growth forecasts for 2017 to 2% from an earlier estimate of 1.4%.

"The German economy is experiencing a major upturn," the council said in its annual report.

Following Tuesday's strong GDP showing, another upward revision may be in store, but more than six weeks after general elections, talks to form a new government are still under way and could drag into next year.

Chancellor Angela Merkel's conservatives are exploring a tie-up with the pro-business Free Democrats party and the Greens. Yet economists say that the prospects of major fiscal stimulus are slim.

Paul Hannon contributed to this article.

Write to Nina Adam at nina.adam@wsj.com and Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

November 14, 2017 09:31 ET (14:31 GMT)