Schroders Quickview: Eurozone growth disappoints but remains steady

Although economic growth in the eurozone slowed in the second quarter, we continue to expect an acceleration in the second half of the year as ongoing oil price weakness boosts households’ spending power.


Azad Zangana

Azad Zangana

Senior European Economist and Strategist

  • Growth slows in eurozone
  • GDP down to 0.3% in Q2 from 0.4% at start of year
  • German growth slightly misses
  • France provides biggest disappointment

German growth slows

The slowdown in growth comes as a slight disappointment for markets where consensus expectations were for 0.4% growth, but given the concerns over Greece during the period, the latest figures show robust and steady recovery.

For Germany, consensus expectations were for 0.5% GDP growth, so an actual growth rate of 0.4% only represents a slight miss.

Industrial production had indicated much weaker growth, but it appears that the services sector, boosted by a surge in retail sales of late, helped to maintain steady growth in aggregate.

The biggest disappointment came from France, where the pick up in activity seen in the first quarter turned out to be too good to last.

French Investment recession

The French economy was stagnant in the three months to June, compared to 0.7% growth in the first quarter (revised up from 0.6%).

Much weaker domestic demand was rescued by an acceleration in exports growth. Household consumption continued to grow in the latest figures, albeit much slower than the past year.

However, the most disappointing aspect of the French data is that the recession in investment has continued. Investment in France has failed to grow for six quarters.

Italy disappoints

Italy also disappointed, missing consensus expectations of 0.3% by managing just 0.2% growth, and compared to 0.3% growth in the first quarter.

Industrial production held up reasonably well in the second quarter, along with retail sales.

However, the Italian economy continues to struggle with domestic rigidities against an increasingly competitive international backdrop.

Elsewhere, Spain had released its preliminary estimate for growth earlier, showing another strong quarter of 1% growth (now up to 3.1% year-on-year).

In addition to Spain, Greece also beat expectations with the crisis-struck state having achieved a miraculous 0.8% growth rate.

Expectations were for a sharp fall in activity given the introduction of capital controls. The negative impact may yet hit in the third quarter.

Elsewhere, Portugal delivered another solid quarter of 0.4% growth – unchanged for the third quarter.

Second-half pick-up

Looking ahead, we forecast a slight acceleration going into the second half of the year as further falls in global energy prices should boost the purchasing power of households.

Concerns over growth in emerging markets, China in particular, may hit investment in Germany, the Netherlands and Austria, which all disappointed in the second quarter.

However, our expectations for stronger growth in the US over the rest of this year should offset emerging market weakness.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.