German, French Economies Continue to Sputter

Germany and France continue to barely grow, which means the chance that the two largest economies in Europe could slip into recession has risen again. Germany's Federal Statistics Office reported that the country's gross domestic product rose only 0.2% in the third quarter. France's National Institutes of Statistics and Economic Studies (INSEE) reported a third-quarter GDP improvement of 0.2%. These numbers could change the attitudes of both countries in terms of the willingness to finance Europe, as well as their view of austerity measures within their own borders

Economists said that Germany's improvement was slightly worse than expected, and France's was slightly better. Those opinions hardly matter. Each of the economies still hugs the flat line, and it would take little for their growth to turn negative.

The German and French economies will be under siege this quarter. The first and most severe problem is that the balance of the eurozone, which are their largest trade partners, are already in recession. The demand for goods and services in many of those nations have taken sickening drops.

Germany and France rely almost as much on the United States and China as they do on their neighbors for trade. China's huge industrial sector may have bottomed based on new data. But the U.S. continues to struggle with what the actual results will be if it reaches the fiscal cliff. Even if the effects are minimal, they will make America a less attractive import market. A slight dip in U.S. GDP would ripple to Europe quickly.

The economic fate of most of Europe has reached an inflection point. There is some admission in Germany, and a great deal in France, that austerity budgets forced on countries that need financial aid only drive those countries further into economic trouble. Ironically, the GDP troubles in France and Germany may harm their chances to fund the region's problems. The attitudes among their citizens that bailout money should stay at home and be used to right their own economies will grow stronger. Those in-country investments may be the key to prevent a rash of austerity in France and Germany as they try to keep their own deficits under control.

Suddenly, stimulus for nations like Spain is in vogue. But Germany and France may be unable to fund the new approach.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Research Tagged: featured
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