German fiscal decline hits euro

THE euro may decline after Germany joined Italy in sliding into recession in the second quarter.

Europe’s biggest economy contracted 0.1% in April to June after shrinking 0.2% in the first quarter.

The economy of the dozen nations sharing the euro probably stagnated in the second quarter, economists said.

“The German report isn’t good news for the European economy. It could have a small negative impact on the euro,” said Audrey Childe- Freeman, an economist at CIBC World Markets in London.

The US economic outlook has a greater bearing on currency markets than what’s happening in Europe, she said.

The euro was trading at $1.1317 at 7.55am London time compared with $1.1310 late yesterday.

It has dropped 1.8% against the US currency in the past three months.

The 12-nation euro economy failed to expand in the second quarter, after 0.1% growth in the previous three months.

Italy’s economy slipped into recession in the second quarter for the first time in more than a decade. Germany’s descent into recession was its second in as many years.

In contrast, US GDP expanded at a 2.4% annualised rate in the second quarter, from 1.4% in the first.

The dollar may get a boost on expectations that a report will show filings for US jobless benefits held below 400,000 for a fourth week.

And US retail sales climbed more than expected in July, a report out yesterday showed.