Business
    Next Score View the next score

    Risk of recession looms in anemic Eurozone

    PARIS — Economic growth in the eurozone sputtered to a halt in the second quarter, official data showed Thursday, as Germany contracted and France stagnated again.

    The gross domestic product of the 18 nations that share the euro did not expand at all from the first quarter of this year, when it grew 0.2 percent, according to Eurostat, the European Union’s statistics agency in Luxembourg.

    The latest quarterly figure equates to a barely perceptible 0.2 percent annual rate, Eurostat said, compared with the 0.8 percent annualized rate from the first quarter.

    Advertisement

    The economy of the 28-nation EU as a whole grew just 0.2 percent from the first quarter, for an annual pace of 0.7 percent, Eurostat said.

    Get Talking Points in your inbox:
    An afternoon recap of the day’s most important business news, delivered weekdays.
    Thank you for signing up! Sign up for more newsletters here

    The figures fall far short of what the eurozone needs to lift more than 18 million people out of unemployment and to stop the slide of consumer prices into outright deflation. The data also indicated that Europe was beginning to falter even before uncertainty among businesses intensified amid the latest round of tit-for-tat sanctions with Russia over Ukraine.

    Lena Komileva, chief economist at G Plus Economics in London, said the figures showed there was a “real risk” that the eurozone was headed back into recession, and they added to pressure on the European Central Bank to adopt stronger monetary stimulus.

    “Not only does this render the ECB’s anemic growth forecast of 1 percent for 2014 unrealistic,” she added, “but it is hard to see just what will keep the recovery growing.”

    The eurozone’s performance bodes poorly for the already shaky global economic outlook. It comes a day after Japan reported that its GDP shrank 6.8 percent in the second quarter at an annual rate and after the United States reported a rebound to 4 percent annualized growth following a dismal start to the year.

    Advertisement

    There were some signs for optimism, as economic growth picked up in several so-called peripheral eurozone members. Spain grew 0.6 percent on a quarterly basis, accelerating from 0.4 percent at the start of the year. Portugal returned to growth after contracting in the first quarter, and Cyprus and Greece moved closer to breaking even, suggesting their steep declines may be ending.

    GDP in Germany, which contributes more than a quarter of the output of the 18-nation currency bloc, shrank by 0.2 percent from the first quarter, reversing a relatively healthy 0.7 percent quarterly rate in the first three months of 2014, according to Destatis, the national statistics agency.

    The French economy showed no overall growth. Insee, the French national statistics agency, reported that business investment and exports declined, negating the effects of a small improvement in household spending.

    The figures for Germany and France, respectively the largest eurozone economies, were a little worse than economists had been expecting. But financial markets took the news largely in stride; the euro was little changed at $1.3374 in Paris afternoon trading, and the Euro Stoxx 50, an index of eurozone blue chips, was up about 0.3 percent at midday. Investors sought the perceived safety of German government debt, with the yield on the 10-year bond dropping below 1 percent for the first time.

    In another worrying sign, the pace of contraction for Italy, the third-largest eurozone economy, accelerated to a 0.2 percent quarterly decline, after a 0.1 percent first-quarter fall.

    Advertisement

    A separate Eurostat report on Thursday confirmed that consumer prices in July rose just 0.4 percent from a year earlier, hammering home the message that a deleterious deflationary spiral was still a threat.

    The German downturn may be temporary, as economists said the latest figures were skewed by unusually fair weather in the first quarter, which bolstered construction growth to a level that was not sustained. But German businesses have warned that the EU’s economic sanctions against Russia could hurt the domestic economy.

    Germany remained relatively healthy through the worst of the economic crisis across the rest of Europe, but the ZEW index of economic sentiment, released Wednesday, showed morale among analysts and investors in the country plunging.