Eurozone economy grows by 0.3% in second quarter

The Eurozone’s economy grew faster than expected, by 0.3 percent in the second quarter. This has allayed fears that the fragile recovery is losing steam.

The growth rate of the gross domestic product on Tuesday was 0.3 percent higher than the Reuters polled economists, who had expected a slight slowdown to 0.2 percent.

The European Central Bank was the first central bank in the world to cut interest rates. The European Central Bank predicted that the demand for goods and services would gradually recover this year, as inflation was slowing down, wages were rising and global trade increased.

Recent business surveys indicate that the Eurozone Economy is affected by geopolitical conflicts, a weaker global economy and fragile consumer confidence.

The economists believe that the data released on Tuesday has marginally increased the likelihood of the ECB reducing rates at its next meeting.

Claus Vistesen, Pantheon Macroeconomics, said that the ECB would definitely reduce rates in September based on the balance between growth risk and inflation trajectory.

Frederik Ducrozet, Pictet Wealth Management, said: “Today’s data does not change the overall picture of an economy that is resilient but not booming and one in which inflation is gradually declining.”

He said that “there is no reason for the ECB” to alter its course of lowering interest rates gradually.

The central bank’s forecast of 0.4 percent for the second quarter GDP was slightly lower than what the actual figure came out to be.

The rate-sensitive yield on Germany’s two-year bonds initially dropped Tuesday morning, before climbing to 2,6 per cent — a level close to the five-month-low. Bond yields decrease as bond prices increase.

The dollar was up 0.1 percent against the euro at $1.0834.

On Wednesday, figures are expected to reveal that Eurozone inflation has slowed from 2.5% in June to 2.4% in July.

The Spanish inflation rate fell from 3.6% in June to 2.9% in July. German inflation, however, increased to 2.6 percent, surpassing the predictions of economists polled by Reuters, who predicted a decline from 2.5 to 2.4 percent in June.

Data released earlier Tuesday showed that the German Economy dragged down the rest of Europe, with output dropping by 0.1 percent in Europe’s biggest economy in the second half.

Federal statistical agency stated that the decline was due to lower investments in equipment and building. Italy’s economy also slowed down to 0.2 percent, with higher service output offsetting a decline in agriculture and industry.

The French economy has grown slightly faster than expected, at 0.3 percent, in the three-month period ending June. This is primarily due to an increase in external trade. France’s performance for the first quarter was also revised upward to 0.3 percent.

Spain’s economy has outperformed forecasts, with a growth rate of 0.8% faster than expected in the three-month period ending June. This was due to strong exports and consumer spending.

Analysts are concerned that France’s unconclusive election of a parliamentary majority will create a vacuum in the political landscape at the center of Europe. This could hamper efforts to reduce debt levels and deficits, undermine consumer confidence, and weigh down business investment.

Pictet’s Ducrozet stated that the Eurozone’s growth would only have been 0.2 percent if Ireland’s GDP jump of 1.2 percent was excluded. The growth of the country is unstable because of the large influence of US technology and pharmaceutical companies operating in Ireland.

He said that the French GDP was also boosted by “a shipment”.

Christine Lagarde, the ECB’s president, said that its September meeting was still “widely open” and that any rate decisions would be dependent on how economic indicators developed.