Eurozone sees sharp slowdown in second quarter

THE eurozone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France, raising fears of a longer-term dip that could derail efforts to resolve the bloc’s debt crisis.

The 17-nation single currency area grew by just 0.2% on a quarterly basis, data showed yesterday, a touch under forecasts and well below first quarter growth of 0.8%.

The slowdown gripped the bulk of the region, with growth in the bloc’s powerhouse Germany sinking to just 0.2% in seasonally adjusted terms, its weakest in more than two years and slipping from a downwardly revised 1.3% in the first three months.

That put the area’s top two economies on the back foot, with figures last week showing French output stagnated in the second quarter.

The picture was equally grim for the region’s high debtors — particularly Greece, Italy, Spain, Portugal and Ireland — where little or no growth means making debt-cutting targets will be even harder to achieve.

“We see falling leading indicators, and that means that we see also weak growth in the third quarter,” said Christoph Weil, European economist at Commerzbank.

“The core countries had very weak growth, and that could be a problem if this trend continues.”

Spain grew just 0.2%, reviving concerns it could slip back into recession.

Growth was zero in neighbouring Portugal, sparing the beleaguered bailout recipient a further contraction thanks only to a bounce in exports.

International Monetary Fund chief Christine Lagarde said reducing debt remained the priority but that countries should not rule out short-term support for jobs and growth.

“Shaping a Goldilocks fiscal consolidation is all about timing. What is needed is a dual focus on medium-term consolidation and short-term support for growth and jobs,” Lagarde wrote in the Financial Times newspaper ahead of the data.

“That may sound contradictory, but the two are mutually reinforcing.”

There was little sign of growth anywhere in the bloc from yesterday’s reports. Only Austria bucked the trend, expanding by 1%.

Yesterday’s data make further interest rate rises less likely from a European Central Bank that has already overcome internal opposition to buy the bonds of Italy and Spain after their debt yields soared to alarming levels.