Economy in Brief

Growth in the European Monetary Union in the third quarter gained 0.7% at an annual rate quarter-to-quarter. This is a sharp deceleration from the 3.3% annualized growth rate in the second quarter as well as from the 2.4% annualized growth rate in the first quarter. Growth year-over-year has now decelerated to 2.1% in the third quarter compared to a 4.3% growth rate in the second quarter.

Inflation rises Not only is growth slowing but the inflation rate has risen. Inflation in October has risen to a 10.7% annual rate, its highest increase year-over-year in this cycle. Despite the slowing in GDP, there is no break on the inflation side. Over six months inflation escalates further to an 11.1% annual rate and over three months inflation cooks at a 13% annualized rate. The inflation situation remains intense while growth is slowing.

Among members growth mostly decelerates in the quarter Only a handful of countries' specific GDP numbers are available for the third quarter. In France, GDP is up at a 0.6% annual rate, slowing from a 2% pace in the second quarter. Germany's growth accelerated to 1.1% quarter-over-quarter pace, compared to 0.4% in the second quarter. Italian growth slows to 2% annual rate in the third quarter from 4.4% in the second quarter. Growth in Portugal is up to 1.6% annual rate compared to 0.4% in the second quarter, and finally Spain grows at a 1% annual rate in the second quarter, a sharp shift from the 6% annual rate in the second quarter.

Large EMU economies do better The four largest economies in the European Monetary Union have growth at 1.1% in the third quarter compared to 2.4% in the second quarter. For the rest of the euro area, growth in Q3 declines by 0.3% at an annual rate in Q3 compared to gaining 5.9% at an annual rate in the second quarter.

Large vs. Small EMU economies Year-over-year growth rates are slower across the European Monetary Union; for the four largest economies the growth rate averages 1.7% in the third quarter compared to 3.7% in the second quarter. For the rest of the EMU, a third quarter rate of 3.2% year-over-year compares to 5.8% in the second quarter. Both the largest and the smallest economies show a downshifting and growth of two percentage points or more based on the year-over-year growth rates. Year-on-year growth rates favor the smaller economics that are nonetheless weaker in the current quarter.

Growth slows broadly across countries Growth slows in the third quarter for each of the five economies that separately report data as well as for the European Monetary Union measure based on 19 countries. However, each country has its own tendency to grow; the table evaluates the growth rate for each of these units compared to its historic tendency. The European Monetary Union's growth ranking for the year-over-year rate for the third quarter is in its 64th percentile. For the four largest economies, the growth rate is in the 60th percentile. Portugal's growth has a 93.5% standing while Italy's growth has an 85.9 percentile standing. Growth in Spain has a 75-percentile standing. However, Germany has only a 40.2 percentile standing, and France has only a 29.3 percentile standing.

U.S. trends are different During the same time, U.S. growth has a 35.2 percentile standing on a year-over-year growth rate of 1.8% that is essentially unchanged from its second quarter pace and for a third quarter growth rate of 2.6% that accelerates from a -0.6% rate in the second quarter. Comparing the U.S. to Europe, it's clear that there are very different things going on in Europe compared to the U.S. although both economic units are showing elevated and difficult inflation outcomes.