Rabobank Group

6-11-2009 | Economic news

Now that the biggest shocks of the financial crisis and the collapse in world trade are behind us, a rising number of economies are finding the way back to the path of economic growth. But among the big countries in the euro zone, sizeable differences are taking shape. While Germany and France struggled out of recession in the second quarter already, and Italy appears to have followed in the third quarter, Spanish economic activity took another step down.

Germany – Tax cuts: a shot in the arm or in the foot?
Merkel’s tax cuts is certainly good news if it can bolster consumption. However, the increase in consumers’ uncertainty concerning the economic outlook, thanks to the anticipated pickup in unemployment and inflation, is expected to dampen consumption in 2010. In that case, the government might have no choice but to consolidate fiscal policy even sooner to reach their 2016 target.

France – The French economy shuffles forward 
The third quarter will probably show a cautious prolongation of the economic recovery. The most promising news came from the industrial sector where output increased with 1.8% in August and the sentiment of the purchasing managers in the manufacturing industry was almost exuberant. Still, the expectation remains that the further recovery in France will be a subdued process in which not all the lost terrain can be regained.

Italy – Growth resumes, but fails to convince just yet
The Italian economy most likely exited recession in the third quarter of 2009. The recovery, however, will lack strength as the early growth is all too dependent on the temporary impulse provided by the turnaround from de-stocking to re-stocking. In contrast, final demand for Italian products has failed so far to exhibit a convincing recovery. Judging from the ailing export orders, the Italian export sector is having a hard time latching onto the global economic turnaround.

Spain – Recession continues
Owing much to government policies, the pace of economic contraction in the third quarter eased markedly compared to earlier this year. But the Spanish economy remained in recession. Knowing that government will withdraw most of its support in 2010, the current difficulty of getting out of recession with government support does not bode well for recovery prospects next year. In October, economic weakness was reflected in unambiguous deflation.  

The Rabobank Economic Research Department follows, analyses and predicts financial and economic developments in the Netherlands and around the world.