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.
Eurozone economic growth slowed to 0.3% in the second quarter compared to 0.4% at the start of the year. 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. 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 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.
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, stronger growth expectations in the US over the rest of this year should be enough to offset emerging market weakness, in our view.