Euro Zone Records Strong 2nd Quarter GDP Growth

Luke Baker

Brussels. Euro zone gross domestic product grew at its fastest pace in more than three years in the second quarter, boosted by strong performances by Germany and France, but concerns remain that the rebound could falter.

European Union statistics agency Eurostat said GDP in the 16-nation currency zone expanded by a percent in the second quarter from the first, and by 1.7 percent from the second quarter of 2009.

Economists said the figures were the strongest in at least three and a half years and showed euro zone growth outpacing that of the United States in the March-June period.

“There was a common sense among economists that the second-quarter GDP figure would be very good, and it’s actually better than expected,” said Hans Bevers, an economist at KBC.

“But in the next quarters we expect there to be a sort of easing. There will be growth, but it will be less than we’ve seen in the second quarter as Europe will normally follow the United States, where we’ve seen also this easing in the last couple of months.”

Germany proved the engine of the euro zone growth figures, with data released earlier on Friday showing the German economy expanded by 2.2 percent in the second quarter, the fastest rate since German reunification, with companies stepping up investment and exports surging.

“Germany is able to respond quickly to pick-ups in global demand,” said Astrid Schilo, Europe economist at HSBC.

“They have the goods that people want. That is what we are seeing in these numbers. But we have to remember, it can contract just as quickly.”

France also recorded strong growth of 0.6 percent quarter-on-quarter. The main drag on the euro zone was Greece, where GDP contracted 1.5 percent.

While the euro zone’s second-quarter figures were encouraging, and the European Central Bank has said that signs are positive for growth in the current quarter, the longer-term prospects have been muted by stalling growth in the United States and China, the world’s two largest economies.

Business and consumer confidence surveys in the euro zone have been encouraging in recent weeks and inflation remains in check, but there is scarce evidence of that confidence filtering through to domestic consumption, which will be the long-term driver in any sustained pickup in the economic growth.

With unemployment in the euro zone hovering at 10 percent — a 12-year high — and most governments looking to impose ever-tighter austerity measures to get their finances back in check, the prospects for an increase in consumer spending are slight.

Exports may be helped by a slightly weaker euro against the dollar, but that will not be enough to keep the region buoyant.

“The recovery still looks worryingly lopsided,” said Jennifer McKeown, senior economist at Capital Economics, speaking after German data were released.

“In all, then, while the surveys suggest that the euro zone’s strong performance might continue into the third quarter, it seems unlikely to last much beyond that.”
 

Reuters