EURO-ZONE Q1 GDP GROWTH PLUNGES
Varying growth rate across the region poses challenge for policymakers
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