Eurozone GDP: Core economies fail to halt contraction

Azad Zangana
European Economist at Schroders
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Post date: Tuesday, 14th August 2012

Azad Zangana, European Economist at Schroders, on today's Eurozone GDP numbers.


Eurozone GDP contracted by 0.2% in the second quarter, following a flat first quarter and a contraction of 0.3% in the final quarter of 2011.

The Eurozone aggregate growth numbers were in line with consensus expectations, despite better than expected numbers from Germany, France and the Netherlands.

German GDP growth slowed from 0.5% to 0.3% in the second quarter, slightly above consensus estimates of 0.2% thanks to a positive contribution from net exports and household consumption.

Meanwhile, French GDP growth stalled for the third consecutive quarter as exports helped stop the economy from shrinking (consensus had expected a 0.1% contraction).

The other upside surprise came from the Netherlands, where the economy grew at an unchanged rate of 0.2%, beating expectations of a 0.3% contraction.

Negative surprises came from Portugal, contracting by 1.2%, and Finland contracting by 1%, and we had already had weak data from Spain (-0.4%), Italy (-0.7) and Belgium (-0.6%).

Overall, the story of a resilient core and a floundering periphery continues. Very low unemployment and falling inflation in Germany are helping to boost household purchasing power and consumption.

Meanwhile, austerity in Italy, Spain and Portugal continues to hit business investment and consumption.

Looking ahead, the resilience of the core economies is likely to be tested in the coming quarters, with leading indicators suggesting slowing order books and falling businesses confidence.

Of course, the outlook remains very uncertain given the nature of the sovereign debt crisis, although we expect a further deterioration in the growth numbers in Q3, before a turning point at the end of the year.

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