November 19, 2012

With a decline of 0.1% (qoq) EMU is now officially in recession, the decline was marginally lower than expected by the market. While the periphery remained firmly in recession (IT -2.4% yoy, ES -1.6%, PT -3.4%, GR -7.2%) France (0.2% qoq, 0.1% yoy) and Germany (0.2% qoq, 0.9% yoy) still managed to stem the tide.

The French economy has been bumping along for the last four quarters and German GDP growth is clearly decelerating. Both economies will probably show a negative print in Q4 (Germany -0.3%, France -0.4%), which means that EMU GDP could fall by almost ½% in the final quarter. We expect that an improving global environment and a positive credit impulse will generate some momentum in 2013. But even if our assumption of stabilization already occurring in Q1 and a modest recovery thereafter is correct, the poor starting level into 2013 implies that annual average GDP in EMU will shrink again by about ¼% (2012: -½%). Our 2013 forecast for Germany has been marked down to a meagre ¼% from 0.8% previously. We therefore remain at the low end of the consensus, which looks for 0.8% (EMU: 0%) but was compiled before the Q3 release.