Thursday 29 September 2016

Second-biggest economy stalls as Eurozone meets on latest Greek bailout

Published 15/08/2015 | 02:30

A weak performance in the French economy dragged down the Eurozone as a whole, despite more optimistic figures coming out of Germany, Europe's largest economy. Photo: Lucas Schifres
A weak performance in the French economy dragged down the Eurozone as a whole, despite more optimistic figures coming out of Germany, Europe's largest economy. Photo: Lucas Schifres

The French economy stagnated in the second quarter with growth in the Eurozone proving weaker than expected, data showed yesterday, as Eurozone finance ministers met to sign-off on Greece's third bailout.

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The economy of the single currency bloc rose by just 0.3pc between April and June, slightly lower than economists had expected, as it was dragged down by a weak performance in France in particular.

Italy's growth lost momentum, easing from 0.3pc in the first quarter to 0.2pc between April and June.

France slowed considerably from 0.7pc growth to stagnation, but a more solid performance from Germany pushed its growth rate up to 0.4pc from 0.3pc, according to the data from Europe's statistical agency Eurostat.

However, year-on-year figures looked more promising, with growth of 1.2pc in the Eurozone in the second quarter compared to the same period in 2014.

The French economy grew by 1pc in the second quarter compared to the same time last year, while Germany's rose 1.6pc and Italy's 0.5pc.

Finland was the only economy to contract, shrinking by 1pc year-on-year. Although second quarter data was not available for Ireland, it surpassed every other European country in the first three months of the year with growth of 6.1pc on an annual basis.

Analysts suggested the quarterly Eurozone slowdown may be temporary.

"The impact from slower growth in China will likely be largely offset by robust demand from the US and the UK," said Holger Schmieding at Berenberg bank, forecasting 0.3pc growth in the third quarter and 0.4pc in the fourth.

The French quarter-on-quarter data sparked concern. It marks the first time in a year that the French economy has failed to grow, though the expansion over the first half was the fastest in three years.

President Francois Hollande is cutting corporate taxes and using emergency powers to give breaks to businesses in an effort to revive growth and lower unemployment in the Eurozone's second-biggest economy.

In the second quarter, consumer spending rose just 0.1pc after climbing 0.9pc in the first. Investment fell 0.3pc after being flat the previous quarter.

Exports improved, however.

Yesterday's Eurozone growth readouts came a day after the minutes of the European Central Bank's last meeting showed it was concerned that volatility in Chinese markets may have more impact than expected on the Eurozone.

China has seen a run of weak economic data.

China's decision to devalue the currency on Tuesday by pushing its official guidance rate down 2pc has also sparked fears of a "currency war" and rattled global financial markets. "Of course, if China were to cause major contagion across emerging markets, growth in core Europe would suffer a little despite positive domestic fundamentals," said Mr Schmieding.

Such uncertainty is holding back businesses.

The mood among analysts and investors in Germany worsened in August due to concerns about the effect of an unstable global economic backdrop on the country's export-dependent economy, a survey showed.

(Additional reporting agencies)

Irish Independent

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