Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Euro zone growth rebounds, inflation tops ECB target

EconomyJul 30, 2021 10:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People enjoy an evening drink at Place de la Contrescarpe in Paris as cafes, bars and restaurants reopen after closing down for months amid the coronavirus disease (COVID-19) outbreak in France, May 19, 2021. REUTERS/Sarah Meyssonnier

By Philip Blenkinsop and Balazs Koranyi

BRUSSELS (Reuters) -The euro zone economy grew faster than expected in the second quarter, pulling out of a pandemic-induced recession, while the easing of coronavirus curbs also helped inflation shoot past the European Central Bank's 2% target in July.

The European Union's statistics office Eurostat said on Friday that its initial estimate showed gross domestic product (GDP) in the 19 countries that use the euro had expanded 2.0% in April-June from the previous quarter.

Compared to the same period a year earlier, when lockdowns to slow the spread of the coronavirus brought economic activity close to a standstill, GDP jumped 13.7%.

But unlike the U.S. and Chinese economies, which have pulled above their pre-pandemic peaks, the euro zone economy remains some 3% smaller than it was at the end of 2019.

Eurostat also said euro zone inflation accelerated to 2.2% in July from 1.9% in June - the highest rate since October 2018 and above the 2.0% mean expectation of economists.

Economic growth also surpassed a Reuters poll forecast of 1.5% for the April-June quarter and a 13.2% annual increase.

Among the outperformers were the euro zone's third and fourth largest economies, Italy and Spain, with quarterly growth respectively of 2.7% and 2.8%. Portugal's tourism-heavy economy expanded by 4.9%.

Since the start of 2020 the euro zone has twice suffered two consecutive quarters of contraction - defining a technical recession - with coronavirus curbs hitting most recently in the period spanning the end of 2020 and the start of 2021.

Activity was dragged down in the first three months of this year largely by weakness in Germany, where a lockdown from November had curbed private consumption.

Europe's biggest economy returned to growth in the second quarter, but the expansion of 1.5% compared to Q1 showed a weaker rebound than expected.

The French economy, the euro zone's second largest, grew by 0.9%, just ahead of forecasts, with its third lockdown gradually being eased from May.

The strong growth could add to arguments for the ECB to start scaling back its crisis fighting measures.

The central bank's 1.85 trillion euro ($2.20 trillion) Pandemic Emergency Purchase Programme is due to expire in March at the earliest, and policy hawks are already arguing that it is time to start tapering purchases given the bloc's rebound.

Policy doves are warning that the more transmissible Delta variant poses a threat to the recovery, however, so the ECB's Sept. 9 meeting is too early for a firm call on winding down the scheme early next year.

SIMILAR Q3 GROWTH SEEN

Bert Colijn, senior economist at ING, said supply chain problems were likely to have hampered growth in Germany, with its large auto industry, while Italy and Spain saw impressive growth because they were further behind pre-pandemic levels.

Even with the Delta variant and continued supply chain issues, ING expects growth across the bloc to be 2% again in the third quarter.

"Despite all the greening efforts, the euro zone economy continues to perform like a diesel engine: it takes a while to get going but don't underestimate it once it's picked up steam," Colijn said.

Capital Economics saw third-quarter growth of a little over 2%, which would still leave the euro zone economy smaller than before the pandemic.

"Germany should reach that (pre-pandemic) benchmark in the second half of the year, but we don't expect the southern economies to do so until well into 2022," its chief Europe economist Andrew Kenningham wrote in a note.

Figures on Thursday showed the U.S. economy grew at a slower than expected 6.5% annualised rate in the second quarter, pulling GDP above its pre-pandemic peak, as massive government aid and vaccinations fuelled spending on goods and services.

The equivalent euro zone rate was 8.3%.

For inflation, energy prices were again the driving factor, rising 14.1% in July compared to a year before.

Without the volatile energy and unprocessed food components, or what the European Central Bank calls core inflation, prices rose 0.9% year-on-year, the same as in June. Economists had expected a dip to 0.7%.

ECB policymakers have already warned of a temporary spike in inflation and made clear they will not adjust policy as the one-off factors behind the rise, such as higher oil prices, are likely to fade next year.

Inflation could even reach 3% by year-end before falling back, with core inflation more subdued.

The ECB promised a longer period of easy policy when it unveiled a new strategy earlier this month, as beyond this spike, inflation is likely to languish below its target for years to come.

Eurostat also said euro zone unemployment fell in June to 7.7% of the workforce, or 12.517 million people, from an upwardly revised 8.0% in May, or 12.940 million people. Economists had expected a jobless rate of 7.9%.

($1 = 0.8412 euros)

Euro zone growth rebounds, inflation tops ECB target
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email