Eurozone growth surprises

ECONOMIC GROWTH in the second quarter in the Eurozone was surprisingly good, led by Germany. The German economy was helped by its vibrant export sector, as world trade rebounded sharply from the recession. But latest indicators show that the peak growth rates of the trade cycle are now behind us, and trade, along with the world economy, is beginning to slow down.

SOLID GROWTH MERRILL LYNCH says Eurozone growth in the second quarter was significantly stronger than was anticipated. The second quarter GDP rose by 1% from the first quarter, exceeding the 0,7% consensus forecast. This was the strongest rate of expansion since the second quarter of 2006. Germany expanded by 2,2% quarter-on-quarter, or 9% annualised. The third quarter started decently, albeit lower.

PERIPHERY FALTERS PERIPHERY COUNTRIES in the Eurozone fared far worse than the core countries. Greece’s second quarter gross domestic product (GDP) shrank 1,5% quarter-on-quarter, while unemployment rose unexpectedly to 12% from 11,9% in April. Spain, after exiting an 18-month-long recession in the first quarter of 2010, grew by only 0,2% in the second quarter of this year. Fiscal austerity prevails in these countries.

TRADE SLOWDOWN MERRILL LYNCH says one of the big stories in the last year has been the sharp rebound in global trade. Trade collapsed in the recession and the recovery has been equally dramatic. The peak growth rates in the trade cycle are now behind us, and trade, like the global economy more generally, is beginning to slow down. The slowdown is clear from the momentum indicator.

IMBALANCES RETURN THE IMBALANCE between the US trade deficit and the surpluses of countries such as China was a problem before the crisis struck, and some would say a cause. During the crisis, the imbalances narrowed. There’s now a convergence back to trend growth, which Merrill Lynch says is likely to lead to some fairly big imbalances. US deficits widen during recovery.