The economies of the Eurozone are in or on the edge of recession; Dutch and probably also Italian GDP already fell in the third quarter.

Germany and Belgium are likely to follow in the last quarter of the year. Confidence of consumers and producers has been undermined by the uncertainty resulting from the European debt crisis.

To restore confidence, decisive action from European leaders is necessary. In Italy and Belgium, brand new governments have already taken up this task.

Germany – Is consumption picking up due to optimism or fear?
Germany's 11Q3 growth (+0.5% q-o-q) testifies to the country's economic resilience. Private consumption was the biggest contributor to GDP growth, partly due to the disappointing performance in 11Q2. There are signs that healthier macro conditions is enticing consumers to open their wallets. But anecdotal evidence suggests that the pickup in spending can also be due to scare-stories in the German media that inflation is on the rise.

Italy – Monti tries to save Italy
As the new Prime Minister of Italy, Mario Monti faces the difficult task of lowering the budget deficit and enacting structural reforms while the economy is falling back into recession. Under the motto "Save Italy", the first set of measures have been passed and put forward to parliament. That is good news for the sustainability of government finances and restoration of market confidence, but will certainly be economically painful.

Belgium – Finally a government!
Almost one-and-a-half year after the elections there has finally been a political breakthrough. With the announcement of harsh austerity measures in 2012 the new government hopes to reduce the budget deficit and thereby to regain market trust. In contrast with this political success, the economic outlook is more worrying. Several indicators point to persistent weakness of activity in 11Q4 and 12Q1.

The Netherlands – Economic activity declining
In the third quarter of 2011, the size of the economy declined. The net contribution from trade was positive, but this engine was not strong enough to drive the entire economy into the positive territory. Both the growth contribution from investment and consumption were negative. Preliminary indicators suggest that the economy is slipping into the red, meaning a technical recession is highly likely.

www.rabobank.com