Zero growth sparks alarm in eurozone states

Eurozone economic growth ground to a halt in the second quarter as Germany’s economy shrank and France’s stagnated.

Zero growth sparks alarm in eurozone states

The zero growth reported by statistics agency Eurostat yesterday was cause for alarm throughout the 18-nation region, which is already bracing for the impact of sanctions imposed on and by Russia over Ukraine.

Germany, Europe’s largest economy, contracted by 0.2% in the quarter, undercutting Bundesbank forecasts that GDP would be unchanged. Foreign trade and investment were notable weak spots, the German Statistics Office said.

“Today’s figures show that the upturn remains too weak to withstand external shocks” — such as the Russian sanctions — “meaning that GDP growth will probably remain stuck in stop-and-go mode,” said Peter Vanden Houte, chief eurozone economist at ING.

France fared little better; its GDP failed to grow for the second quarter in a row. That forced the French government to confront reality, saying it would miss its budget deficit target this year and cutting its 2014 forecast for 1% growth in half.

Italy, the eurozone’s third-largest economy, slid back into recession for the third time since 2008 in the second quarter, shrinking by 0.2%. Pressure grew on Prime Minister Matteo Renzi to complete promised structural reforms.

Rome and Paris have led a drive to focus EU policy more on jobs and growth than on cutting debt. Germany and others have made clear they will only tolerate so much debate on that point.

Bundesbank chief Jens Weidmann said on Wednesday that eurozone monetary policy should not aim to weaken the euro. Individual member states should take steps to boost growth, he said, rebuffing French calls for Germany and the European Central Bank to do more.

The European Commission said yesterday’s GDP report showed the importance of structural reforms. “The ongoing adjustment in the euro area today is a story of a deep structural change,” a spokesman for the commission said yesterday. “External developments may increase uncertainty, but foundations remain intact,” they added.

German economy minister Sigmar Gabriel blamed his country’s slowdown on threats from Eastern Europe and the Middle East, and a weaker eurozone. Also, he said, construction continued during a mild winter, so the second quarter did not see the usual recovery in building work.

But German GDP should increase in the remainder of 2014, Mr Gabriel said. “Growth rates in Germany will likely return to growth in the rest of this year, but the risks from abroad have, without doubt, increased,” he said in a statement.

A Reuters poll of economists conducted over the past week gave only a 15% chance that the ECB will start printing money this year.

— Reuters

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