Eurozone growth slows, outlook modest

Eurozone growth slows, outlook modest
PHOTO: Reuters

RUSSELS - Growth in the eurozone slowed slightly in the second quarter but it appears to be holding up against the Greek debt crisis and the Chinese slowdown, official data showed Friday.

Analysts said the figures suggest the economy is bumping along, but there seems little hope of a sharp improvement despite a massive European Central Bank stimulus programme.

The 19-nation eurozone expanded 0.3 percent in the three months to June after a gain of 0.4 percent in the first quarter, the Eurostat statistics agency said.

Analysts had expected 0.3-0.4 percent after recent data showed inflation and unemployment little changed.

Compared with second quarter of 2014, the economy grew 1.2 percent, Eurostat said.

The eurozone slowdown reflected a sharp reverse in France - flat after a jump of 0.7 percent in the first quarter - which was offset in part by a pick-up in Germany, Europe's powerhouse economy, to 0.4 percent from 0.3 percent.

Analysts at Capital Economics said the eurozone would likely continue slow growth, supported by Spain and Germany but with France unlikely to show much improvement.

Among the larger economies, Spain was one of the best performers with a gain of one percent in the second quarter, while Italy added just 0.2 percent.

"Looking ahead, business surveys suggest that the eurozone economy will continue to expand, led by strong growth in Spain and a solid German economy, but they offer little hope that the recovery will gain pace," analyst Jennifer McKeown said in a research note.

"We suspect that growth in the region as a whole will slow further in the second half of the year as temporary boosts from a weaker euro and lower oil prices fade," McKeown said.

"This underlines the need for the ECB to maintain and perhaps extend its policy support."

Muted growth outlook

The ECB has pledged to pump more than one trillion euros (S$1.57 trillion) into the economy through September 2016 to boost demand and credit.

Data last month showed the July eurozone inflation rate unchanged at 0.2 percent while unemployment for June was also flat.

The inflation data has been a cause for concern as the figures directly reflect consumer demand and have fallen well short of the ECB's inflation target of just under two percent.

A notable highlight of Friday's report was debt-mired Greece, which gained 0.8 percent in the second quarter, but analysts said that was an anomaly.

"The 0.8 percent Greek expansion should be seen as a freak figure, distorted by Greek consumers emptying their bank accounts and spending it on durable goods out of fear for a possible 'Grexit,'" said Peter Vanden Houte at ING Bank.

Vanden Houte said the figures overall showed the eurozone was holding its own against the Greek and Chinese headwinds although the ECB may still have to do more.

"The relative immunity... 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," he said in a note.

He added that he shared the ECB's view "of a broadening recovery, with risks remaining tilted to the downside." The Chinese economy has slowed steadily in the past year and Beijing has recently pushed down the value of the yuan in a bid to boost its key export sector.

Chinese and global markets have sold off sharply as a result on fears China's downturn will sharply undercut world growth prospects.

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