EURO-ZONE Q1 GDP GROWTH PLUNGES

Vary­ing growth rate across the re­gion poses chal­lenge for pol­i­cy­mak­ers

The Financial Express - - FRONT PAGE -

EURO zone eco­nomic growth halved in the sec­ond quar­ter to a mod­est pace, as a mild slow­down in Ger­many was over­shad­owed by a sur­prise stag­na­tion in Italy, of­fer­ing scant hope of a de­ci­sive re­bound for the cur­rency bloc as a whole any time soon.

The 0.3% quar­terly ex­pan­sion, or 1.6% an­nual pace, matched ex­pec­ta­tions in a Reuters poll of econ­o­mists and showed the euro zone al­ready slow­ing ahead of Bri­tain’s shock June 23 vote to leave the Euro­pean Union.

While there have been no clear signs in sur­vey data of an eco­nomic hit out­side of Bri­tain since the vote, the of­fi­cial data showed that a burst of ac­tiv­ity at the start of the year was fleet­ing and more stim­u­lus may still be re­quired.

“The ques­tion re­mains if even this lower growth rate can be sus­tained in Q3,” wrote ING Se­nior Econ­o­mist Bert Colijn.

“With Brexit un­cer­tainty weigh­ing on ex­ports and in­dus­trial weak­ness, it seems that the con­sumer has to carry a lot of the weight of the euro zone ex­pan­sion on its shoul­ders.”

There is also lit­tle sign of any broad im­prove­ment around the cor­ner, a Reuters poll showed on Thurs­day.

The chal­lenge for pol­i­cy­mak­ers, both at the Euro­pean Cen­tral Bank and in mem­ber economies which are re­luc­tant to or re­strained from open­ing the fis­cal taps for stim­u­lus, is that growth rates across the euro zone are now vary­ing widely.

In the big­gest econ­omy, Ger­many, gross do­mes­tic prod­uct grew 0.4%, dou­ble the 0.2% ex­pected in a Reuters poll and mark­ing a 3.1% pace com­pared with the same pe­riod last year the strong­est an­nual fig­ure in five years.

While slower than the start of 2016, growth was boosted by ex­ports as well as con­sumer spend­ing, putting Ger­many’s per­for­mance and prospects ahead of many of its peers.

So while the euro zone fig­ures as a whole broadly sup­port con­tin­ued stim­u­lus from the Euro­pean Cen­tral Bank, which has cut its de­posit rate to -0.4% and is buy­ing 80 bil­lion eu­ros of mainly govern­ment se­cu­ri­ties a month among other mea­sures, they don’t ap­pear to be so nec­es­sary for Ger many.

KfW bank econ­o­mist Jo­erg Ze­uner said Bri­tain’s vote to leave the EU would even­tu­ally hurt, how­ever.

“The de­ci­sion to leave the EU will­hit­theBri­tishe­con­omy,and the slow­down will spread to Ger­many through muted ex­ports,” he said. “The UK is an im­por­tant mar­ket, es­pe­cially forGer­man­car­mak­ers,bu­talso for our chem­i­cal and phar­ma­ceu­ti­cal in­dus­tries.” Reuters

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