Eurozone recovery takes a knock, as Germany suffers a shock contraction in the last quarter and France stagnates.Summary: Eurozone recovery stumblesEurozone economy fails to grow in Q2German GDP falls by 0.2% in second quarter of 2014French economy fails to growFrench finance minister: Well miss our deficit targetPortugal grows by 0.6%, Netherlands by 0.5%Introduction: Results Day for eurozone leaders 1.32pm BST Europes faltering recovery has taken a blow after growth in the region ground to a halt in the last quarter.Eurozone GDP was flat in the April-June quarter, compared to January-March, as its three largest members all struggled.RT @Hugodixon #Greece was 2nd fastest growing zone economy in Q2 after Latvia acc to unofficial data: http://t.co/FlAAPlq0Xc /via @FT #euroA stalling of economic growth in the second quarter raises concerns that the euro area is sliding back into a triple dip recession. Many, including the European Central Bank, point to survey data suggesting such fears are overplayed, and that growth will revive as previously announced stimulus take effect. But the weakness of economic growth will certainly fuel louder calls for the ECB to do more to reinvigorate growth across the single currency area.Too little growth to stop the debt snowball, a vicious cycle of fiscal austerity and lack of aggregate demand staying in place and dooming Europe to Japanification.Draghi is involved in a game of brinkmanship. It is not fiscal austerity but evidence of structural reform that he is looking for before he considers sanctioning European style QE, especially from Italy and France. However, structural reforms do not happen overnight, and as the case for QE strengthens, any delay will have a disproportionate impact on the pace of recovery in the rest of Europe.European policies must be refocused by adapting the pace of deficit reduction to the current economic environment. 1.02pm BST Thank you for the many excellent comments this morning. Heres a selection:An obsession on GDP, rather than GDP per capita, is missing the point ....with GDP per capita gives a more accurate assessment of the dynamics of economic growth/decline.Sadly, within the UK, the obsession with GDP is akin to Smoking Mirrors.... a deceitful approach in the run up to the next General Election.Stagnation, high unemployment in some EZ countries, huge youth unemployment in some, high debt to GDP ratios, no chance of some ever getting to the 3% debt to GDP ration for deficits (France).......Just as it has been for years, and there is little or no chance of ever reaching escape velocity. The eurozone will always be unworkable because the euro is unworkable. For the EZ it is not "growth" that is the problem, it is the very low inflation.These growth figures take into account inflation - and it is possible for an economy to have negative absolute growth but still have positive "real" growth.The problem is the debt dynamics - the total amount of outstanding government debt does not decrease because of deflation, neither does it increase because of inflation (there may be changes to yields, but I'm trying to keep it simple).The UK has gone some way to stabilising its debt/GDP ratio, not through cuts (in absolute terms government has never spent so much money) but by using inflation.This has punished savers (creditors) and given debtors a chance to sort themselves out.IMO the EZ as a whole needs some inflation.There are dire imbalances in the eurozone: some countries have huge deficits while Germany has a huge (trade) surplus. Countries who have had deficits for too long MUST correct their deficits, but that must be balanced by a german policy of eroding its surplus, which is also an «imbalance».The great error of the eurozone is that Germany demands immediate deficit correction from the PIIGS (to which I fully agree) but refuses toa ccept the most obvious side-effect of its trade partners correcting their deficits, which is that german surplus must mirror this trend.Draghi is involved in a game of brinkmanship. It is not fiscal austerity but evidence of structural reform that he is looking for before he considers sanctioning European style QE, The GDP figures might show GDP, but they do not show the budget dificits with it. So the UK is running a budget deficit of about 5.5% whereas Germany is running a budget surplus, i.e. it collect more in taxes than it spends and for the first time since WW2 its total debt is falling, where as in the UK total debt is growing very quickly. 12.34pm BST Back in the stock markets, and Europes leading indices have recovered their early falls, despite the grim GDP data.The FTSE 100, German DAX and French CAC are all up around 0.5%. On this daily chart of German market DAX you can exactly see when Putin started his speech on Ukraine pic.twitter.com/AUQPFdRuat 12.23pm BST As flagged up earlier, the eurozone suffered a double-dose of bad news this morning - with inflation hitting just 0.4%, its lowest level since 2009. The ECB has allowed the eurozone to sleepwalk into deflation. My interview to CNBC: http://t.co/bkbIJC99YL 12.21pm BST As this graph shows, Europes economy faltered three years ago as the debt crisis exploded. It recovered after that crisis eased, but hopes of a sustained bounce-back have faltered:Euro Area (EA14) Real GDP flat; Germany, Italy -0.2%; France flat; EA14 lags US and UK #MarketEdge #eurozone #GDP pic.twitter.com/9oomXnPp3X 12.18pm BST There is more chance of Germany suffering a recession this year than adding the European Championship trophy to the World Cup it secured last month in Brazil:Heres Paddy Powers latest odds: 12.15pm BST Heres a phrase you dont read every day on the Guardian.... Give George Osborne some credit.Why, exactly? Because the chancellor had enough gumption to abandon his goal of eliminating Britains budget deficit in this parliament, once it became abundantly clear that the plan was off course.Want to understand whats happening in the eurozone? Then think back a couple of years to the early years of the UKs coalition government.That was the time when the British economy was flatlining. Sure, there were periods when activity expanded. But the recovery never really gained traction and was vulnerable to unexpected shocks. Sometimes these were external as with the eurozones debt crisis; sometimes they were internal as with ill-timed and excessive austerity. 11.46am BST Lots of European GDP figures out this morning. Here's a handy round-up: pic.twitter.com/ITwOsImcmF 11.44am BST Todays weak data has not hurt the euro. Its hovering around $1.337 against the US dollar, and 80.1p against the pound.But Jonathan Wilks, head of foreign exchange dealing at Investec Corporate and Institutional Treasury, reckons the single currency could weaken, hurting British firms who export to the eurozone.The euro may not have moved immediately in response to the disappointing economic data from France and Germany but if speculation about further central bank stimulus is correct, it wouldnt be a surprise to see a longer term weakening trend for the currency.As the economies of the UK and continental Europe increasingly uncouple, the opposite is likely for sterling when interest rates finally increase, creating a headache for anyone exporting to the European market. Profits are already being eroded by the strength of the pound, with many companies already having to restate their forecasts. Given the dynamics in play at the moment it would be unwise to bet against more of the same in the next reporting season. 11.34am BST Heres Larry Elliotts news story on todays disappointing GDP figures:A stalling of economic growth in the second quarter raises concerns that the euro area is sliding back into a triple dip recession. Many, including the European Central Bank, point to survey data suggesting such fears are overplayed, and that growth will revive as previously announced stimulus take effect. But the weakness of economic growth will certainly fuel louder calls for the ECB to do more to reinvigorate growth across the single currency area. 11.19am BST Quarter-on-quarter growth data can be erratic, so we should also look at the year-on-year figures for a broader view.And Alberto Nardelli, our incoming data editor, has even colour-coded the latest data (green = growth; purple/pink = contraction).EU GDP, Y/Y, by country http://t.co/6m1G0yFSyP pic.twitter.com/ehp1JbADuU 11.04am BST 0 out of 3.Not one of the Eurozone's 3 largest economies managed to grow in Q2.Spain,the 4th largest,bucked the trend pic.twitter.com/tr582qoDDn 10.56am BST Heres a round-up of all the latest growth/contraction figures for the EU (Ive excluded countries who havent reported GDP for the second quarter yet). 10.53am BST Two years after calming the eurozone crisis by pledging to do whatever it takes to preserve the euro, ECB chief Mario Draghi is under pressure again to revive growth and fend off deflation.Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management. says all eyes are on Draghi to take further action to boost liquidityEven Europes biggest economies are showing signs of trouble, which is dragging on corporate earnings. Italy has fallen back into recession, while more forward looking data points to an ongoing slowdown in both France and Germany, triggering the euro to hit an 11 month low.... Draghi is involved in a game of brinkmanship. It is not fiscal austerity but evidence of structural reform that he is looking for before he considers sanctioning European style QE, especially from Italy and France. However, structural reforms do not happen overnight, and as the case for QE strengthens, any delay will have a disproportionate impact on the pace of recovery in the rest of Europe. The pressure on Draghi is mounting. 10.38am BST The euro zone is staring recession in the face once more, warns Ben Brettell, senior economist, Hargreaves Lansdown, after seeing that growth stuttered to a halt last quarter.He also believes that the weakness in Germanys economy could melt the countrys opposition to quantitative easing* in the eurozone (* - creating new money to buy government bonds and hopefully stimulate growth) This exceptionally weak data increases the pressure on Mario Draghi to make good his pledge to do whatever it takes and finally embark on a quantitative easing programme. Indeed the French finance minister has released a statement urging the ECB chief to act. Ideally Draghi would have liked breathing space to see if the measures introduced in June have the desired effect, but in truth todays dreadful data calls for urgent action to prevent the euro zone slipping into a Japan-style cycle of stagnation and deflation. The most severe problems in the euro zone have so far been limited to the periphery, with the core remaining in relative good health, but the last few months have seen something of a shift. Some peripheral economies are now registering decent GDP growth (Portugal beat forecasts with 0.6% in Q2 and Spain is growing at the same rate), whilst the core looks in increasing trouble. 10.30am BST Cyprus remains in recession, but the pace of the downturn in the austerity-gripped country has eased.Cypruss GDP fell by another 0.3% in Q2, compared with a 0.6% fall in January-March. Its economy has shrunk by 2.5% over the last year. 10.22am BST We also have confirmation that the eurozone slipped closer to deflation last month.The euro area consumer prices index rose by just 0.4% in July, the lowest rate since October 2009. 10.12am BST While the eurozone stagnated, the wider European Union grew by 0.2% in April-June. Thats partly thanks to the UK, which recorded a 0.8% rise in GDP.Eurostats report is here. It includes this chart, showing how the US economy outpaced Europe in Q2, with growth of around 1%. 10.08am BST Growth in the eurozone has fallen to zero in the second quarter. The much touted recovery has stalled. 10.04am BST Breaking: The Eurozone economy stagnated in the second quarter of the year, confirming fears over the strength of the recovery.Eurostat reports that GDP across the euro area was flat in the April-June quarter, as growth ground to a halt. 9.54am BST OK, its nearly time to find out how the overall eurozone economy performed in the second quarter of 2014.Economists had predicted that GDP would only rise by 0.1%. But that was before we learned that Germany had contracted by 0.2%, and that France was still stagnating..... 9.45am BST Portugals INE statistics body says an increase in Exports of Goods and Services helped the country post 0.6% growth last quarter.On an annual basis, GDP is up by 0.8% -- pulled back by the contraction in the first quarter. 9.39am BST There will be sighs of relief in Lisbon, as Portugals economy returns to growth after a bad start to the year.Portuguese GDP rose by 0.6% in April-June, beating forecasts of 0.5%. That follows the 0.6% contraction in January-March.#Portugal GDP grew by 0.6% qoq in Q2, but after very weak Q1. PT tops Eurozone growth table in Q2 with Spain. Italy and Germany trail.Portugal Q2 GDP comes in at 0.6% exp: 0.5% 9.30am BST Kit Juckes, currency strategist at Societe Generale, sums up the problem in Europe:Too little growth to stop the debt snowball, a vicious cycle of fiscal austerity and lack of aggregate demand staying in place and dooming Europe to Japanification. 9.26am BST A rise in exports helped Bulgaria to grow by 0.5% during the last quarter. On an annual basis, GDP rose by 1.6%. 9.22am BST German 10Y Yield Drops Below 1% For First Time: pic.twitter.com/gRWNgab1Gj 9.21am BST GDP growth in last three months (annualised): Germany -0.8%, Italy -0.8%, France 0%, United Kingdom +3.2%. 9.21am BST The surge of money into German government bonds has driven the interest rate, or yield, on 10-year bunds below the 1% mark for the first time ever.French government has also rallied in value, pushing down the yield on its 10-year debt to just 1.392%.GERMANY'S 10-YEAR YIELD DROPS BELOW 1% FOR FIRST TIME ON RECORD 9.11am BST Decent growth figures from Poland -- its economy grew by 3.2% over the last year.Poland's Q2 GDP grows by 3.2% y/y to meet expectations; Q1 growth confirmed at 3.4% y/y - stats office flash estimate 9.00am BST The winners and losers so far:@MarkitEconomics Here's the chart with the correct headline: pic.twitter.com/GHEd8c6prL 9.00am BST Slovakias economy expanded by 0.6% during the last quarter. That matches Spains growth rate during the quarter (Spanish GDP was released a couple of weeks ago). 8.57am BST Frances declaration today that it will miss its deficit targets isnt a surprise, but is an important moment. So says city analyst Marc Ostwald of ADM Investor Services.#FranceGDP: abandoning deficit targets a declaration of political bankruptcy; likely to play a major role in reviving the Eurozone crisis 8.50am BST Barclays: "France Q2 GDP: Yet another disappointment - towards entrenched stagnation?" 8.39am BST The Netherlands has returned to growth, in a much-needed boost for the eurozone after a bruising morning.The Dutch economy grew by 0.5% in the April-June quarter, its statistics office reports.Eureka! Dutch #GDP grows 0.5% in Q2, Q1 revised upwards to -0.4% (was -0.6%). pic.twitter.com/MyJ2w838GK 8.29am BST Interesting point:The only reason French GDP didn't fall in Q2 was because household energy consumption rose 3.5% in Q2 due to a warmer than normal Q1... 8.25am BST Investors in Paris and Frankfurt are not impressed by todays data.Frances CAC 40 index of leading shares has fallen by 0.35%, or 14 points, in early trading to 4180. 8.20am BST Austria has outpaced Germany. Austrian GDP rose by 0.2% in the April-June quarter. Not a great performance, but better than many neighbours.#Austria: GDP up 0.2% qoq in Q2. Better than expected given the country's Eastern exposure. 8.17am BST Wolfgang Munchau of EuroIntelligence says todays figures from Germany and France are absolutely awful -- putting the eurozone once again on the brink of recession. 8.14am BST Ferdinand Fichtner, economist at Germanys DIW thinktank, says: (via Reuters):The German economy may have slipped into a slight recession due to crises. 8.10am BST Bad news from Romania, though. Its annual growth rate has more than halved in the last three months, to +1.2% from 3.4% in Q1.So spectacularly bad Romania GDP and that's even before Russia's counter-sanctions have started to kick in. 8.08am BST Finally some good news, from Hungary. Its economy grew by 3.9% over the last 12 months, up from 3.5% in the first quarter of 2014. Thats the fastest annual rate since 2006. (Quarter-on-quarter data isnt available). 8.02am BST But they said #euro zone was fixed 8.02am BST Sovereign bond expert Nick Spiro is alarmed by the state of the eurozone economy right now:Two-thirds of eurozone GDP is now either in recesssion, flirting with it or contracted in the second quarter. Recovery? What recovery? 8.01am BST Lots more growth data to come this morning, from smaller countries across the European Union.The Wall Street Journal has helpfully rounded up the details 7.58am BST As well as halving Frances growth forecast in 2014 to just 0.5%, finance minister Michel Sapin also urged the European Central Bank to use all available means to fight deflation and bring euro to more competitive level, in his op-ed piece in Le Monde today.The ECB has already promised to flood the euro banking sector with another 400bn in cheap liquidity, to encourage small business lending. But critics are certain to seize on todays disappointing growth in Germany and France as proof that it must go further, and embrace full-blown quantitative easing (buying government bonds and securities with new money). 7.48am BST Its been a double-whammy of bad eurozone news so far, says analysts at French BNP Paribas:BNP: "French and German GDP: Double-ouch" 7.46am BST Not just the periphery! Germany's economy unexpectedly contracts in Q2 - -0.2% Q/Q - trade and investment weigh.In the second q of the year the French econ was stagnant, reporting zero growth. French min says growth target of 1% now impossible.#franceGermany's economy contracted by 0.2% in the q2. Imports grew faster than exports. Watch for growth figures later and the 'Ukraine' effect.Germany contracts by 0.2%, about time too... As long as the eurozone sputters Germany sputters and no fiscal compass/six pack can fix that. 7.36am BST We learned last week that Italy, Europes third largest economy, has fallen back into recession with GDP dropping by 0.2% during the second quarterWith Germany also shrinking, and France stagnating, there are worries that the wider eurozone growth figure (10am BST) could be a disappointment too.Germany, Italy, France - the Q2 growth figures don't bode well for the #eurozone - data coming at 11 CET, won't be pretty, alas. 7.32am BST The interest rate, or yield, on German debt has hit a new record low this morning after this mornings disappointing (no)growth figures.The yield on 10-year bunds slumped to just 1.022% -- the lowest rate of return on record. 7.27am BST Carsten Brzeski, economist at ING, blames Germanys shrinking economy on its domestic market and its eurozone neighbours, rather than geopolitics.He says:Contrary to a common belief, the stagnation is not so much the result of crisis in the Ukraine and European sanctions on Russia but its rather homemade. Or better: homemade and Eurozone-made. The reversal of the mild-weather-effect on the construction sector, an unusual amount of holidays in May combined with ongoing problems in France and Italy should have been the main drivers of the slowdown of the German economy. As long as the second and third largest Eurozone economies (France and Italy) are struggling to accelerate their reform pace, the German economy will remain the Eurozones main growth engine. 7.22am BST A reminder of how Germanys economy had performed over the last two years. 7.20am BST Germanys Federal Statistics Office says the 0.2% contraction is mainly due to a disappointing performance on foreign trade and investment.Especially in the construction sector (which may be slowing down after benefitting from a mild winter).According to @destatis foreign trade and capital formation had a negative impact on German #GDP 7.12am BST The shock contraction in Germany is certain to fuel concerns that Europes recovery is coming off the rails.Is Germany finally feeling the impact of the wider problems in the eurozone, having outperformed its neighbours last year?Europe's 'powerhouse' #Germany sees Q2 GDP down 0.2% from previous quarter, after France reports no growthThe 'Powerhouse' of Europe. :-/ 7.04am BST Breaking: The German economy has contracted, in a serious blow to the eurozone economy.German GDP fell by 0.2% in the last quarter, the first drop since 2012. Thats worse than expected -- many economists had predicted that Germany would have stagnated. 7.01am BST Its official -- France expects to miss its growth targets, and its deficit targets, this year.Frances finance minister Michel Sapin made the admission in an opinion piece in the Le Monde newspaper this morning. The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending, 6.55am BST On Bloomberg TV, UBS currency strategist Beat Siegenthaler says hes not surprised that the French economy has failed to grow again, given its well-documented weakness.Hes more concerned about how Germany performed, given its close links to Russia. We get the German GDP figure in a few minutes.... 6.52am BST So why has France stagnated again?Todays GDP report shows that companies slashed their investment again, with gross fixed capital formation shrinking by 1.1% between April and June. 6.41am BST Breaking News: Frances economy failed to expand in the last quarter.INSEE, the statistics body, has reported that French GDP was unchanged in the three months between April and June. Thats a nasty shock - economists had expected a small expansion. 6.37am BST Good morning. Were about to find out how well the eurozone economy performed in the last quarter, and it may not be pretty.Todays the day when the first estimates of GDP across the single currency for April-June are released. Results Day for eurozone politicians and policymakers, perhaps.Growth in the euro area is perilously low, and vulnerable to even slight setbacks in sentiment.At the current rate, growth is far too low and uncertain to make a meaningful difference to a still high unemployment rate and too high debt levels. Continue reading...
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