The economic expansion in the euro area's two largest economies cooled in the fourth quarter, marking the start of a slowdown that may deepen in 2008. Gross domestic product in Germany, Europe's biggest economy, rose 0.3 percent from the third quarter, when it increased 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Expansion in France also eased to 0.3 percent, from an 0.8 percent rate in the second quarter according to INSEE.
In France, consumer-spending growth eased to 0.4 percent in the fourth quarter from the 0.8 percent in the third. Corporate investment rose 1 percent, after 1.1 percent in the third. Exports fell 0.6 percent after having risen 1.3 percent in the third quarter. So the trade deficit is definitely acting as a drag on growth.
So the expansion in the eurzone economies is losing momentum as a surge in the euro against the dollar makes exports less competitive abroad just as the U.S. economy hovers near a recession and households grapple with faster inflation. The question is, since the French economy never went up as far as the German one during the recent upswing, may we expect it to resist falling so far down during the downswing? This is my impression, but, of course, we are all about to see. Certainly with a relatively younger population than Germany, France may have more leeway on the fiscal front to adopt counter-cyclical policies, much as this may be frowned on from Brussels and Frankfurt. Clearly there is considerable volatility in the quarter on quarter data, but over the longer haul may Frech GDP prove to be the more solid and stable of the pair?