Eurozone: Weaker domestic demand drags on growth in Q2
September 4, 2015
Eurostat released a more complete set of data for GDP on 4 September and the new economic information showed that the Eurozone’s GDP increased a seasonally-adjusted 0.4% in Q2 over the previous quarter and revised up from the 0.3% increase shown in an earlier estimate. The reading came in slightly below the also-revised 0.5% rise recorded in Q1 (previously reported: +0.4% quarter-on-quarter).Compared to the same quarter last year, GDP growth rose from 1.2% in Q1 to 1.5% in Q2.
More complete information indicated that domestic demand, in particular investment, was the main driver behind the quarterly slowdown. The details show that private consumption increased 0.4% in Q2, which virtually maintained the same pace as in Q1 (+0.5% qoq) in a context of low inflation due to lower energy prices. Government spending decelerated to a 0.3% rise in Q2, which was half the 0.6% increase tallied the previous quarter. Meanwhile, gross fixed investment was hard hit and contracted 0.5% in Q2, which contrasted the 1.4% expansion recorded in Q1, marking the first contraction in a year. The contraction came in despite an ultra-loose monetary policy, which is keeping interest rates at record-low levels.
External sector developments showed that a weak euro continues to support exports. Eurozone’s overseas sales of goods and services increased 1.6% quarter-on-quarter in Q2, which was faster than the 1.0% expansion tallied in Q1. Imports, however, decelerated from a 1.5% rise in Q1 to a 1.0% increase in Q2. Therefore the contribution from net exports to overall economic growth swung from minus 0.2 percentage points in Q1 to plus 0.3 percentage points in Q2.
Should the slowdown in the second quarter be temporary, the Eurozone economy remains firmly entrenched on the recovery path.
Author: Ricardo Aceves, Senior Economist