Eurozone's Economy Expected To Resume Growth This Year, Speed Up In 2015

 @MeaganKaym.clark@ibtimes.com on August 14 2014 3:25 PM
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Shop owner Petra Breitenfellner stands in her shop, "Geko", in the centre of Passau, about 200 km (124 miles) northeast of Munich, May 19, 2014. Reuters

Though the euro zone’s economic recovery has halted, estimates released Thursday found, economists expect growth to resume by the end of the year and accelerate further next year.

The euro area’s seasonally adjusted value of goods and services sold did not change from April to June, compared to 0.2 percent growth in the previous quarter, the European Commission’s statistics bureau said.

Inflation also fell to 0.4 percent in July, its lowest level in four and a half years and far below the European Central Bank’s 2 percent target, strengthening calls for the ECB to lift growth and prevent deflation by injecting more cash into the economy.

“Overall, the numbers reinforce our view that the euro-zone economy remains too weak either to tackle the periphery’s debt problems or to eliminate the dangers of deflation,” Jonathan Loynes, chief European economist for Capital Economics, wrote in a note Thursday. “We still believe that the ECB needs to implement further policy action.”

Capital Economics lowered its forecast for euro-zone growth this year to 0.5 percent to 0.7 percent, down from 1 percent, and forecasts 1.5 percent growth in 2015. IHS Global Insight also forecasts 1.5 percent growth over next year. That would be significantly weaker than the 3.9 percent GDP growth in the U.S. and 2.5 percent GDP growth in the U.K. expected in 2015 by the International Monetary Fund.

Germany alone provides more than a quarter of the euro zone’s output, and its economy shrank 0.2 percent over the period, its first decline in gross domestic product since 2012. France’s economy recorded no growth, and Italy’s economy has fallen into its third recession since 2008.

According to Jennifer McKeown, senior European economist at Capital Economics, the decline in German GDP is “not as alarming as it might appear, given that it was caused partly by temporary factors.”

Those factors include a stronger-than-normal first quarter with mild weather and, though to a lesser extent, the escalating crisis in Ukraine and sanctions against Russia in the second quarter, she said.

“Despite the second-quarter setback, we continue to advocate that the German economy will return to growth promptly, underpinned by private consumption and improving investment,” said Raj Badiani, European economist for IHS Global Insight.

Nevertheless, the euro zone still faces significant growth constraints. Throughout much of the area, credit conditions remain tight, unemployment threatens to creep back up and is unlikely to fall much anytime soon, and wage growth remains low, Badiani said.

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