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Frankfurt - Eurozone growth slowed in line with economists’ forecasts in the second quarter, leaving the currency bloc vulnerable to any fallout from Britain’s vote to leave the European Union.
Gross domestic product rose 0.3% in the three months through June, the European Union’s statistics office said on Friday. That matches an initial estimate and marks a slowdown from an expansion of 0.6% in the first three months of this year. The German economy grew 0.4%, twice as fast as predicted, while Italy’s unexpectedly stagnated.
Slower growth strengthens the case for more stimulus. European Central Bank President Mario Draghi has held out the prospect of more easing in case Brexit harms the 19-nation economy and weighs on inflation. The International Monetary Fund already scrapped its forecast for a pickup in global growth this year following the referendum.
“A weak number is a foretaste of what comes in the second half of the year,” Holger Sandte, chief European analysts at Nordea Markets in Copenhagen, said before the report.
“Looking forward, growth is more likely to be in the 0.2% to 0.3% area given the slowdown in Italy and also in France, where manufacturing looks pretty weak. It’s too early for Brexit to show up in hard data, but it’s definitely a burden.”
Diverging trend
With an increase of 0.6%, Dutch GDP also beat estimates. France reported last month that growth stalled in the second quarter. Greece’s economy unexpectedly grew 0.3%, following a 0.1% contraction at the start of the year.
Diverging economic paths highlight some of the challenges eurozone countries are facing. In addition to terrorism fears in countries like France, bad loans are weighing on Italian banks, damping credit supply, and political gridlock in Spain is fueling uncertainty among consumers and companies.
That leaves Germany with an even bigger roles to play in ensuring the eurozone recovery remains on track. Europe’s largest economy is drawing its strength from domestic demand, with record-low unemployment and rising wages bolstering growth.
“The figures for the second quarter are somewhat above expectations and underline the relatively robust economic trend in Germany,” Bundesbank deputy chief economist Stephan Kohns said in an emailed statement.
Rising Risks
Joerg Kraemer, chief economist at Commerzbank in Frankfurt, sees the reason for Germany’s strength in the ECB’s expansionary monetary policy.
“Obviously the risks are rising,” he said. “But that’s completely glossed over by an ECB-fueled consumption boom and with no Bundesbank to stop it there is a lot of momentum in this boom so I expect this to continue over the years.”
The Frankfurt-based ECB is scheduled to set policy on September 8. The Bank of England has already cut rates to a record low in a package of stimulus measures.
So far, there’s little evidence of any impact of Brexit on sentiment and production at the eurozone level. Purchasing managers surveyed in July reported accelerating output, and a European Commission survey showed economic confidence unexpectedly increased. One reason for optimism may be full order books, which are set to shield manufacturers from potentially dwindling demand for another four months.
“My sense is that the ECB probably has some more work to do,” said Jonathan Loynes, chief European economist at Capital Economics in London. “There is a big divergence between different countries and the outlook is still the one of pretty sluggish economic growth in the next quarter or two.”
