Eurozone Recovery Halts In Q2

(RTTNews) - Eurozone recovery came to a halt unexpectedly in the second quarter as Germany and Italy shrank from the prior quarter, while inflation was at the weakest level since late 2009 in July, keeping the pressure on the central bank to initiate more stimulative actions.

Gross domestic product remained flat during the three months to June from the prior quarter, when it was up by 0.2 percent, flash figures from Eurostat showed Thursday. Economists had forecast 0.1 percent growth.

On a yearly basis, GDP growth slowed to 0.7 percent from 0.9 percent in the first quarter. The annual rate matched economists' expectations.

The EU28 GDP grew 0.2 percent quarter-on-quarter and 1.2 percent on a yearly basis in the second quarter.

Today's GDP numbers reinforce the assessment that the Eurozone economy remains too weak either to tackle the periphery's debt problems or to eliminate the dangers of deflation, said Jonathan Loynes, chief European economist at Capital Economics, said.

The ECB needs to implement further policy action - probably in the form of full-scale quantitative easing - to try to bring the euro down and re-ignite the recovery, the economist said.

However, decision makers in Frankfurt are likely to continue to highlight the importance of the measures already taken and stand pat for the remainder of the year, said Peter Vanden Houte, an economist at ING Bank NV.

Data released today showed that inflation eased to 0.4 percent in July as initially estimated from 0.5 percent in June. This was the lowest annual inflation rate since October 2009.

Inflation has moved further down from the European Central Bank's target of 'below but close to 2 percent'.

The quarterly Survey of Professional Forecasters, from the ECB, today downgraded inflation outlook for 2014 and 2015 to 0.7 percent and 1.2 percent, respectively.

It also trimmed the real growth outlook for 2014 to 1 percent from 1.1 percent but maintained its 2015 projection at 1.5 percent.

Among big-four nations, Germany, the largest Eurozone economy, contracted more-than-expected in the second quarter, while Italy returned to recession and France stagnated. On the other hand, Spain's economic recovery gained strength.

Hurt by weak exports and investment, German GDP fell 0.2 percent sequentially after expanding by a revised 0.7 percent in the first quarter. This was the first decline since the first quarter of 2013.

Elsewhere, French GDP remained flat in the second quarter, forcing the government to discard its 2014 deficit target. Economists had forecast the economy to grow 0.1 percent after staying steady in the first quarter.

Italy shrunk 0.2 percent in the second quarter, which was the fastest decline in a year. The second consecutive fall in GDP took the economy into a technical recession.

Meanwhile, Spain grew 0.6 percent sequentially, slightly stronger than the 0.4 percent expansion in the first three months, which was the fastest in six years.

The Netherlands and Portugal recovered in the second quarter. Dutch GDP gained 0.5 percent, reversing the 0.4 percent decline a quarter ago. Likewise, Portugal grew 0.6 percent sequentially, offsetting the 0.6 percent fall in the prior quarter.

Finland also recovered in the second quarter, up 0.1 percent versus 0.3 percent fall in the first quarter. Similarly, Estonia that joined the euro area in January 2011, grew 0.5 percent following a 0.7 percent drop.

Latvia's growth rose to 1 percent from 0.6 percent. Latvia became the 18th member of the Eurozone on January 1.

Austria's GDP growth accelerated to 0.2 percent from 0.1 percent. Meanwhile, the neighboring Slovakia's growth eased to 0.6 percent from 0.7 percent.

Growth in Belgium also slowed in the second quarter, to 0.1 percent from 0.4 percent.

The Greek economy shrunk at the least in nearly six years during the three months ended June. GDP fell 0.2 percent year-on-year, but slower than the 1.1 percent fall a quarter ago.

The downturn in the Cypriot economy extended into the second quarter. GDP was down 0.3 percent but slower than the 0.6 percent decline in the prior quarter.