Euro zone growth slows unexpectedly

Europe's economy expanded less than initially estimated in the third quarter as companies trimmed spending to weather the region's worsening debt crisis.

GDP in the euro region rose 0.3 per cent from the second quarter instead of 0.4 per cent reported on December 2nd, the European Union's statistics office in Luxembourg said today.

Investment was revised from being unchanged to a 0.3 per cent decline. A separate report showed the jobless rate held at 10.1 per cent in November when adjusted for seasonal swings, the highest in more than 12 years.

Europe's economy has been reliant on exports as the region's sovereign-debt crisis prompted countries from Spain to Italy to step up austerity measures, hurting consumer demand and forcing companies to pare costs. MAN SE, Europe's third-largest maker of commercial vehicles, said on December 17th it expects to maintain its sales growth on demand from emerging markets.

"So far, the situation looks relatively good," said Juergen Michels, chief euro zone economist at Citigroup in London. "That means we'll see moderate growth going forward. 2011 will be a rather difficult year overall with a strong development in Germany and weak growth in peripheral nations."

The euro was little changed against the dollar after the report, and traded at $1.2990 as of 10:07 am in London from $1.3003 yesterday.

Consumer spending increased 0.1 per cent in the third quarter, down from a 0.3 per cent estimate in the December 2nd report. Government spending rose 0.4 per cent in the quarter, exports increased 1.9 per cent and imports rose 1.5 per cent.

Germany continued to fuel euro zone growth in the third quarter, expanding 0.7 per cent from the second quarter, when it grew 2.3 per cent, today's report showed.

The French and Italian economies both expanded 0.3 per cent. Ireland, which had the euro area's highest budget shortfall in 2010, had a GDP increase of 0.5 per cent, Spain's economy stalled and Greece's economy contracted 1.3 per cent.

From a year earlier, euro-area GDP increased 1.9 per cent, after increasing 2 per cent in the second quarter, today's report showed. That's in line with the December 2nd estimate. The report also showed the US economy grew 0.6 per cent in the third quarter from the previous three months, based on an EU measure.

The European Central Bank in December forecast that the euro region economy expanded about 1.7 per cent in 2010. Estonia this month became the 17th nation to join the currency area and the ECB Governing Council holds its first interest-rate meeting of the year in Frankfurt on January 13th.

Bloomberg