By: Mike Campbell
Germany is traditionally seen as the power house economy of Europe. So, the fact the Q3 GDP figures show that the German economy has slowed down is likely to increase the pressure on the Euro. The single European currency has been trading lower recently because of fears about Irish abilities to manage their debt. The Irish deficit has spiralled to 32% of GDP as the costs of supporting the financial sector in the wake of the global financial crisis and the bursting of the Irish property bubble are factored in.
The German Q3 performance still showed growth, but it had fallen from 2.3% in Q2 to just 0.7% between July and September. It was inevitable that the Q3 figure would be down on the previous quarter since Q2 showed the fastest rate of growth seen in Germanysince the reunification of East and West Germany.
The French economy also slowed from 0.7% in Q2 to just 0.4% in Q3. Francefaces a record deficit of 7.7% of GDP this year. The government is tackling this with a raft of measures including the termination of some tax cuts and cuts in public sector spending. Longer term plans have seen the retirement age raised to 62; a move which provoked substantial public anger. The French government is predicting that 2011 will see annual growth of 2%, but many analysts believe this is overly optimistic.
The Euro is also under pressure due to concerns about the European bond market and the wide spread of yields between debt vehicles from core Eurozone members and those for more peripheral members of the zone. Financing German debt, for instance, is much cheaper than financing Irish debt at the moment.