Skip to main content

Construction work is seen on architect Renzo Piano's Shard tower at London Bridge in central London October 26, 2010.


Paris entrepreneur Charles Kehoe is well aware of what the official figures say. The recession is history, consumer confidence is rising and economic growth, as tepid as it is, has returned. Still, the economy doesn't feel right to him.

Mr. Kehoe owns a nursery and child products distribution company called Gamin Tout Terrain that, like most European private businesses, went through hell during the recession and is now happy to say the worst has passed. But that doesn't mean the good times have come roaring back, even if sales are creeping up.

"I can't say I perceive much rise in consumer confidence around me," he said. "The French seem as worried as usual about employment and retirement."

Story continues below advertisement

A mix of European economic data released Tuesday, from French consumer confidence to British growth, more or less confirmed the sentiment of Mr. Kehoe and other business people. There was some good news, some bad. On balance, the good won out - this time at least - although the figures were not compelling enough to break out the champagne.

Britain was the source of the standout good news. Gross domestic product expanded at 0.8 per cent in the third quarter. Growth was propelled by surprise gains in the services and construction sectors. Elsewhere in Europe, new consumer confidence figures were a mixed bag.

While the British GDP figure, which is subject to revision, was less than the 1.2-per-cent growth rate pumped out in the second quarter, it was enough to convince Britons that a dreaded double-dip recession is not a certainty even though the housing market is going in the wrong direction and the financial services industry remains under pressure.

Prime Minister David Cameron's Conservative-Liberal Democrat coalition government took the latest figure as a vote of confidence in its economic management program, one dominated by a harsh austerity program that is slashing department budgets by 15 to 25 per cent as it tries to crunch one of Europe's widest budget deficits. The government also received a boost from ratings agency Standard & Poor's, which lifted its outlook for Britain to "stable" from "negative."

George Osborne, the Chancellor of the Exchequer, said "the country's credit rating, which had been put at risk by the previous government, has been secured," adding that a "steady recovery" is now under way.

But not so fast, say some economists. "The government will no doubt take this as a sign that the private sector can fill the gap created by public sector cuts, but with consumer confidence, hiring intentions surveys and housing activity all softening, we remain cautious," said ING Bank economist James Knightley.

He and other economists expect growth rates to decline in the next few months. Shadow chancellor Alan Johnson said the economy is still benefiting from the stimulus package put in place by the previous government, led by Gordon Brown, and that the austerity program poses a grave risk to the recovery.

Story continues below advertisement

"The risk going forward is that the government has a plan to cut one million jobs, but no plan to support the private sector in replacing them," he said.

The higher-than-expected GDP figure pushed up both the pound and bond yields, suggesting investors think the government will wait somewhat longer before deciding to unleash another round of quantitative easing (QE). Mr. Osborne last week said the Bank of England is prepared to expand its QE program if the economy were to deteriorate quickly.

Despite the stronger third-quarter growth figure, some economists think a renewed QE effort is inevitable. "With growth set to slow and inflation worries likely to ease over the coming months, we still anticipate the need for more QE early in the New Year in order to counter the impact of fiscal tightening," the authors of Capital Daily, a report published by London's Capital Economics, wrote Tuesday.

Across the English Channel, consumer confidence data showed that consumers were not altogether convinced their economies would keep improving.

Italy, the euro zone's third-biggest economy, got a pleasant surprise when the benchmark consumer confidence report climbed in October to its highest level since April. The index's publisher, Isae Institute, said households' "assessment of the general economic situation improved" because of "modest gains in the outlook for growth and employment."

A similar measure of household sentiment in France also recorded a gain, rising to its highest level since March. But in Germany, the consumer expectations indicator will remain fixed for November, said the Nuremberg market research firm GfK. The indicator had climbed for four consecutive months. While November's figure was the highest since May, 2008, economists had predicted a stronger figure.

Story continues below advertisement

All of the euro zone could take heart from the EU bailout chief's declaration that the debt crisis is receding. "Europe has taken decisive action to tackle sovereign-debt issues," Klaus Regling, CEO of the European Financial Stability Facility, said at a Tuesday conference in Brussels. "The worst of the crisis in Europe is behind us."

The EFSF is standing by to offer financial assistance to any highly indebted EU countries that cannot roll over its debt. It would do so by selling bonds backed by €440-billion ($624-billion) in national guarantees, and use them to make loans to the distressed countries. Mr. Regling said the "central expectation: is that no country, not even Greece, will seek an EFSF bailout.

Report an error Licensing Options
About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.