Europe's economy shows modest growth of 0.2%, held back by laggard Germany

FRANKFURT, Germany (AP) — Europe’s economy grew by a modest 0.2% in the third quarter, official figures showed Thursday. Growth in the 20 countries that use the euro was held by back higher U.S. tariffs and anemic performances by Germany and Italy, both of which barely avoided a technical recession.

The weak growth outcome won't be enough, however, to spur the European Central Bank to cut interest rates. The ECB's stand-pat stance is a sharp contrast with that of the U.S. Federal Reserve, which cut its benchmark rate by a quarter percentage point Wednesday and is wrestling with whether to cut again before the end of the year.

Germany's economy stagnated, with zero growth in the August-September third quarter, following a contraction of 0.2% in the second quarter, figures from EU statistics agency Eurostat showed. Two straight quarters of falling output is one frequently used definition of recession. Italy likewise turned in zero growth after contracting by 0.1% in the second quarter.

Germany's manufacturing- and export-focused economy has been held back by multiple factors including higher energy prices, competition from Chinese producers of autos and industrial machinery, a lack of skilled workers and excessive bureaucracy.

Another headwind for Europe comes from President Donald Trump's imposition of a 15% tariff, or import tax, on goods brought to the U.S. from Europe, as well as from the uncertainty spread by back-and-forth talks with the European Union’s executive Commission. over possible higher tariff rates.

The ECB left its key interest rates unchanged at its previous two meetings in July and September. The bank has cut its benchmark rate to 2% after raising it to 4% to snuff out a burst of double-digit inflation caused by the pandemic rebound and an energy crisis due to Russia's invasion of Ukraine.

ECB head Christine Lagarde said both times that monetary policy was “in a good place." Annual inflation of 2.2% in September is within range of the bank's goal of 2%, and keeping inflation under control is the ECB's chief job. Lower interest rates stimulate growth while higher ones combat inflation but can hold back business activity through higher borrowing costs.

The ECB meeting “will be as close to a non-event as one could possibly imagine,” said Matthew Ryan, head of market strategy at payments platform Ebury.

Purchasing managers surveys pointing to a modest improvement in economic activity at the start of the fourth quarter have strengthened the case for no further cuts, analysts say. Analysts at Deutsche Bank said 2% was likely the end of the ECB’s cuts and foresaw the next rate moves as moderate increases only late next year as German infrastructure and defense spending start to boost growth and inflation.