Eurozone Q2 Growth Expectations Fall Short

Euro-area economic growth unexpectedly slowed last quarter as expansion in its three largest economies fell short of estimates, highlighting the fragility of the recovery amid uncertainty surrounding the global outlook.

Gross domestic product in the 19-nation region rose 0.3 percent, data on Friday showed. Economists had forecast that the 0.4 percent pace of the first quarter would be maintained. Germany’s economy grew 0.4 percent, Italy’s 0.2 percent, while France stagnated.

With China jolting global markets by devaluing its currency and Greece on the verge of a new bailout program, the euro area’s nascent revival may yet struggle. European Central Bank policy makers meeting in July called the recovery “disappointing” and said they’re ready to adjust stimulus if needed, a summary of the discussions showed on Thursday.

While growth will continue, it will slow “as temporary boosts from a weaker euro and lower oil prices fade,” said Jennifer McKeown, an economist at Capital Economics in London. “This underlines the need for the ECB to maintain and perhaps extend its policy support.”

German GDP had been forecast to rise 0.5 percent in a Bloomberg survey. France and Italy were projected to increase 0.2 percent and 0.3 percent, respectively.

Economic growth in the Netherlands also fell short of estimates in the three months through June, at 0.1 percent. Economists had forecast 0.3 percent. Portuguese GDP climbed 0.4 percent, compared with a prediction of 0.5 percent.

Key Pillar

German growth was driven by net exports and private consumption, the statistics office said, while investment, especially in construction, was a drag.

“Exports are a key pillar for the German economy and global demand is currently too low to sustain it at full speed,” said Johannes Gareis, an economist at Natixis SA in Frankfurt. “But the German economy finds itself generally in a comfortable situation and in fact it is set to profit from increasing tailwinds in the coming months.”

France’s stagnation marks the first time in a year that the economy has failed to grow. Consumer spending rose just 0.1 percent in second quarter after climbing 0.9 percent in the previous three months.

Spain, Greece

Spain and Greece have provided the high points of the period’s GDP so far. Spain’s economy expanded 1 percent, the fastest pace in more than eight years, data showed last month.

Greece, which imposed capital controls and came close to leaving the currency bloc during a standoff with creditors this year, said on Thursday that its GDP rose 0.8 percent. The surprise surge, led by consumer spending and tourism, is seen by analysts as a blip amid a crumbling economy.

The International Monetary Fund last month cut its forecast for global growth, singling out financial-market turbulence in China and Greece. China sent shock waves through global markets on Tuesday by devaluing the yuan.

The Bundesbank said in July that the German economy is supported by strong consumption and wage increases. Factory orders point to a manufacturing revival in coming months.

Bloomberg

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