Eurozone: Disappointing Q2 GDP data highlight fragility in recovery but analysts are more positive for H2
August 14, 2015
The economy of the Eurozone continued to grow in the second quarter, although at a more moderate pace. The latest data suggest that the Eurozone recovery remains fragile despite low oil prices, a weaker euro and mass bond-buying by the European Central Bank. A preliminary estimate released by Eurostat on 14 August showed that GDP increased a seasonally-adjusted 0.3% over the previous quarter, which was a touch lower than both the 0.4% expansion registered in the previous quarter and the 0.4% increase the markets had expected. In annual terms, GDP growth picked up from 1.0% in Q1 to 1.2% in Q2.
The slowdown in the second quarter was the result of a stagnation in France and disappointing economic growth in Germany, Italy and the Netherlands. GDP in France was flat compared to the previous quarter in Q2, which followed an impressive 0.7% increase in Q1. In Germany, GDP grew 0.4% in Q2 (Q1: +0.3% quarter-on-quarter), disappointing the consensus of analysts, which had the German economy expanding 0.5%. In the Netherlands, the economy increased a timid 0.1% in Q2, below both the 0.6% rise in Q1 and 0.3% the markets had foreseen. The loss in momentum in the Eurozone’s core came despite the healthy performance seen in the periphery. Spain led the pack, growing an astonishing 1.0% in Q2. Even in Greece, despite the aggravation of its debt crisis in Q2, GDP managed to grow 0.8% in the second quarter.
Although analysts were cautious about the slowdown in the second quarter, the consensus is that the deceleration was temporary and that the Greek debt crisis and the Chinese cooling are not having a direct impact in the Eurozone economy. Peter Vanden Houte, Chief Economists at ING commented:
Even if the growth pace was slightly lower than in the first quarter, the relative immunity of the European economy to the Greek crisis and the Chinese slowdown remains encouraging, although it’s probably still a bit too soon to claim victory on this front. And one mustn’t forget that today’s GDP is still more than 1% below the level reached in the first quarter of 2008. We can only echo the ECB’s Governing Council assessment of the current situation: an expectation of a broadening recovery, with risks remaining tilted to the downside. In that regard we continue to expect that the ECB’s Asset Purchase Program will be implemented in full and that even more can be done, if needed. This implies that excess liquidity will continue to increase, putting further downward pressures on money market rates.
Marco Valli, Chief Eurozone Economist also added:
Eurozone economic growth slowed to 0.3% qoq in 2Q15, slightly weaker than expected. Importantly, the deceleration from the first quarter does not reflect fundamental drivers, but volatility in quarterly data due to temporary factors. The underlying trend remains healthy and we expect economic growth to reaccelerate to a 2% annualized pace in 2H15. In a context of resilient domestic demand, Chinese and Greek woes are very unlikely to derail the Eurozone recovery. Our 1.4% GDP forecast for this year remains well on track.
Should the slowdown in the second quarter be temporary, the Eurozone economy remains firmly entrenched on the recovery path.
Author: Ricardo Aceves, Senior Economist