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German Economy Contracts In Q2, Drags Eurozone Growth Lower

ByXM Group
AuthorTrading Point
Published 08/14/2014, 07:07 AM
Updated 05/01/2024, 03:15 AM

The Eurozone economy stalled in the second quarter of the year, after a surprise contraction in Germany and weakness in the French economy dragged overall gross domestic product figures.

The Eurozone was expected to grow by at least 0.1%, a slightly slower rate than a prior 0.2%. The zero growth rate raised concerns about the state of the economic recovery in the 18-nation region, which is likely to be impacted negatively by the Ukraine crisis and the sanctions against Russia, which is a major trading partner for many Eurozone countries.

A main contributor to dragging GDP lower was Europe’s largest economy, Germany, which unexpectedly contracted by 0.2% on the quarter, despite the Bundesbank forecasts for growth to at least remain flat.

French GDP also disappointed although fared a little better than Germany. The second largest Eurozone economy flatlined for a second quarter in a row. This prompted France’s government to say it would miss its budget deficit target again this year and cutting its 2014 forecast for 1 percent growth in half.

The third largest Eurozone economy – Italy - slipped back into recession for the third time since 2008 shrinking by 0.2% in the second quarter. In reaction to the data, Italian Prime Minister Matteo Renzi promised to complete structural reforms.

As can be seen, none of the Eurozone’s three largest economies recorded growth and it is evident that confidence is fading both on the business and household side.

The weak flash GDP data today would add pressure on the European Central Bank to do more to shore up growth in the Eurozone.

The euro rose to 1.3395 since the release of the GDP data after having dipped to a low of 1.3354 after the disappointing German data.


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