The Second Largest Economy in Europe Slips into Recession

French gross domestic product (GDP) is expected to decrease by 0.1 percent in the fourth quarter, according to a central bank survey, indicating that the second largest economy in the eurozone is on the path to recession, while the German government anticipates slower growth.

The central bank also predicted a 0.1 percent decline in activity for the third quarter. Economists generally define a recession as two consecutive quarters of declining activity. A separate report from the National Institute of Statistics and Economic Studies (INSEE) showed a weak finish to the third quarter in industry, with an overall production decline of 2.7 percent in September, following a 1.9 percent increase in August.

In the manufacturing sector alone, production fell by 3.2 percent in September, after a 2.1 percent increase in August, INSEE reported. French Finance Minister Pierre Moscovici recently stated that he expects the economy to grow slightly in the third quarter, while INSEE predicts stagnation. The government forecasts a 0.3 percent GDP growth this year, and a 0.8 percent growth in 2013, compared to the European Commission’s forecast of 0.2 and 0.4 percent growth, respectively.

Growth in Germany, the largest European economy, is expected to weaken in the fourth quarter of this year and the first quarter of next year, according to estimates from the German Ministry of Economy on Friday, pointing to a delay in private investments due to the eurozone crisis. The ministry stated that it expects ‘significantly weaker economic dynamics’ during the winter.

– Currently, however, we expect only a short-lived period of weakness – the ministry stated. Data released this week showed a decline in activity in the private sector, a drop in industrial orders, and the largest decrease in exports since the end of last year, due to weakening demand in eurozone countries.

The ministry emphasized that it is unlikely that exports, which this year have been shielded from the negative effects of weakening demand in European countries by demand from Asia, will support the economy in the coming months.
– Domestic and foreign demand for German industrial products is weakening, and the economy will not be able to rely on stimuli from foreign trade in the coming months – the ministry announced.