Eurozone GDP Growth Loses Momentum

(RTTNews) - Eurozone economic growth slowed slightly in the second quarter despite slight improvement in Germany, as France came to a halt, restoring the divergence between the two largest euro area economies.

Gross domestic product expanded 0.3 percent sequentially in the June quarter, preliminary data from Eurostat showed Friday. The rate of growth was expected to remain unchanged at 0.4 percent.

Year-on-year, GDP growth improved to 1.2 percent from 1 percent. Nonetheless, annual growth was marginally slower than the 1.3 percent expansion forecast by economists.

Peter Vanden Houte, an ING Bank NV economist, said 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 is probably still a bit too soon to claim victory on this front.

Underpinned by exports, Germany's growth improved to 0.4 percent from 0.3 percent in the first quarter. Likewise, Spain's growth advanced to 1 percent from 0.9 percent.

Meanwhile, the second largest euro area economy stagnated after expanding at the fastest pace in almost two years. Growth in Italy eased to 0.2 percent from 0.3 percent in the previous quarter.

Austria's economy grew marginally by 0.1 percent after rising 0.7 percent in the first quarter. At the same time, the neighboring Slovakia's growth held at 0.8 percent.

Similarly, growth in Portugal and Belgium remained unchanged at 0.4 percent. Dutch GDP grew only 0.1 percent, after rising 0.6 percent in first quarter.

Estonia recovered in the second quarter, with GDP rising 0.8 percent following a 0.3 percent fall. Cyprus expanded for the second straight time. GDP gained 0.5 percent, but was slower than the 1.4 percent rise a quarter ago.

Meanwhile, Finland moved deeper into recession with GDP declining 0.4 percent, which was worse than the 0.2 percent drop in the first quarter.

The youngest Eurozone country, Lithuania, grew 0.6 percent, rebounding from a 0.5 percent contraction in the preceding quarter. Latvia, which joined Eurozone last year, advanced at a faster pace of 1.2 percent after rising 0.4 percent a quarter ago.

On the other hand, the Greek economy expanded 0.8 percent even as the debt crisis brought activity to a standstill late June. It was the first growth in three quarters.

Separately, final data from Eurostat today confirmed 0.2 percent inflation in the currency bloc for July, the same rate as seen in June. On a monthly basis, consumer prices fell 0.6 percent.

At the same time, core inflation accelerated to a 15-month high of 1 percent from 0.8 percent in June. The statistical office confirmed the flash estimate released on July 31.

With the recovery too weak to generate inflation, the European Central Bank is set to maintain and perhaps extend its policy support, Jennifer McKeown, a senior European economist at Capital Economics, said.

The ECB forecast the region to expand 1.5 percent this year and 1.9 percent next year. Inflation is expected to be at 0.3 percent.

The minutes of the July rate-setting session of the ECB, released on Thursday, said that policymakers expect euro area growth to remain "moderate and gradual", which they assessed was disappointing from both a longer-term and an international perspective.

Real GDP currently stood only close to its 2008 level in the euro area, while in the United States it had registered a significant rebound, the ECB pointed out.