Eurozone: Economi growth halves in Q2
July 29, 2016
After a positive start to the year, Eurozone GDP halved in the second quarter as transitory tailwinds disappeared and France’s economy stalled. According to a preliminary estimate, the Eurozone economy increased a seasonally-adjusted 0.3% in Q2 over the previous quarter, which was half of Q1’s 0.6% growth and marked the worst result since Q2 2014. The reading met FocusEconomics panel’s expectations. Compared with the same quarter of 2015, GDP expanded 1.6% in Q2, which was a notch down from the 1.7% tallied in Q1.
Although the preliminary GDP data did not include a breakdown by components, the slowdown was probably due to temporary factors. Private consumption likely slowed in the second quarter after receiving an extra boost from the early timing of Easter and a mild winter in Q1. Despite the expected deceleration, the domestic economy likely remained the driver of growth as the unemployment rate continued to fall to the lowest level since July 2011 and an expansionary monetary policy continued to support economic activity in the bloc.
Meanwhile, additional data released by statistical offices across the continent showed that France’s economy ground to a stop in Q2 and recorded zero growth over the previous quarter. Meanwhile, Spain continued to be one of the region’s best performers and grew a solid 0.7% quarter-on-quarter in Q2. Belgium’s economy picked up steam, whereas Austria’s growth moderated.
The Q2 figure does not fully reflect the uncertain backdrop that is clouding the Eurozone’s outlook since the Brexit referendum, which took place in the final days of the quarter. Marco Valli, Chief Eurozone Economist at UniCredit points out:
“Overall, the growth rates in 1Q16 and 2Q16 should be considered jointly in order to smooth out the volatility of quarterly data: in 1H16, the annualized pace of growth was 1.7%. This is an above-trend, although unimpressive, performance. The outlook for 2H16 and early 2017 may prove a bit more challenging, mainly due to the uncertainty generated by Brexit, which comes on top of already sluggish foreign demand and fading support from the weak currency and low oil prices. We think GDP growth may soften in the next two-to-three quarters, towards an average annualized pace of about 1%. For the time being, the soft data available after the UK referendum point to good resilience. “