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Slowdown in euro area threatens recovery

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Slowdown in euro area threatens recovery

The euro area economy expanded marginally in the third quarter, as stagnation and record high unemployment continue to threaten the currency bloc’s fragile recovery. Gross domestic product cooled to 0.1 percent in the euro area, compared to 0.3 percent in the second quarter. Eurozone GDP was down 0.4 percent from year-ago levels, according to Eurostat.

Economic activity slowed in Germany, France and Italy, the region’s largest member-states. Germany’s GDP accelerated 0.3 percent in the third quarter, down from 0.7 percent in Q2. On an annualized basis, Germany’s economy advanced 1.1 percent, beating estimates. France’s GDP fell 0.1 percent on a quarterly basis and rose 0.2 percent from year-ago levels. The picture was much grimmer in Italy, where GDP fell 0.1 percent in the third quarter and 1.9 percent from year-ago levels.

With the second and third largest Eurozone economies contracting, Germany has been responsible for most of the region’s growth. With euro area inflation cooling to its lowest level in four years, market participants are speculating whether the euro area is heading back toward recession. Italy suffered its ninth consecutive quarterly slump, extending its longest stretch of contraction since the euro was established.

“The bleak GDP estimate shows how fragile and hesitant the [euro area’s] recovery is – so much so that it’s questionable whether current economic conditions even qualify as recovery,” said Nicholas Spiro of Spiro Sovereign Strategy. Last week the European Central Bank slashed interest rates for a second time this year in a desperate attempt to invigorate growth in the fragile currency bloc. Analysts believe this won’t be enough to get the Eurozone back on track.

While economists forecasted a slow quarter, the broad slowdown is a blow to employment prospects for struggling families across the region. The region’s youth unemployment is at a staggering 23.5 percent, up from year-ago levels. The official unemployment rate is at a record high of 12.2 percent.

“Youth unemployment is the true nightmare of our country,” said Italian Prime Minister Enrico Letta. More than 40 percent of Italian youth aged 15 to 24 are out of work.

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