Trade prevents a deeper euro zone downturn

Thu Dec 6, 2012 7:17am EST
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By Robin Emmott

BRUSSELS (Reuters) - German exports of cars and machinery helped shield the euro zone from a deeper recession in the third quarter while companies emptied warehouses and cut investments, showing the role of trade in driving any recovery.

Confirming a 0.1 percent contraction in output for the July-to-September period, the EU's statistics office Eurostat said on Thursday that exports were the only sector to make a significant contribution to growing the economy.

The reading, which confirms Eurostat's November 15 first estimate, showed the 17-nation bloc was in its second recession since 2009, the result of stagnant government spending and household consumption, and a lower contribution from investment and inventories in the quarter.

Struggling to emerge from its public debt and banking crisis, the euro zone relied on exports of goods such as German cars to China to provide a 0.4-percentage point contribution to gross domestic product, and that trend is set to continue.

"Trade and the end of the uncertainty surrounding the euro zone's future are the two things that will bring the bloc out of recession," said Christoph Weil, an economist at Commerzbank.

"We expect the global economy to pick up and that will give more momentum to euro zone exports," he said, forecasting growth of 0.5 percent for Germany next year, but none for the euro zone.

With euro zone unemployment at a record high and the single currency area divided about how to resolve a banking crisis brought on by the 2008/2009 global financial crisis, companies and households are reluctant to spend while governments are cutting to bring down their budget deficits.

But a slowly recovering U.S. economy and strong Chinese demand mean German exports - which account for 40 percent of the euro zone's total foreign sales - still have a market even as demand in indebted southern Europe shrivels.   Continued...

Cars for export stand in a parking area at a shipping terminal in the harbour of the northern German town of Bremerhaven, late October 8, 2012. REUTERS/Fabian Bimmer