Eurozone returns to growth

The currency union has ended six quarters of contraction, but the good news could come with a bitter twist for the periphery.

The latest GDP figures for the eurozone showed that the currency union had returned to growth (as a whole) for the first time since 2011. The economy grew at a rate of 0.3% in the second quarter of 2013, slightly better than analysts had expected. The improvement was driven mainly by faster growth in Germany (0.7%) and France (0.5%), while the Dutch, Italian and Spanish economies all shrunk slightly.

What the commentators said

Although a breakdown of the full data is yet to be published, German and French figures show household spending played a key role in driving demand. "This suggests that the recent period of relative calmness in the eurozone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union," said Capital Economics.

Nonetheless, the divergence between Europe's stronger and weaker economies remains deeply entrenched, despite Portugal managing an unexpectedly high 1.1% growth rate. "The peripheral economies remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt," added Capital Economics.

Indeed, further hints of a two-speed recovery with Germany and France accelerating and the periphery lagging might be a cause of more worry than celebration, if it led to a stronger euro or forced the European Central Bank to reconsider its ultra-loose monetary policies.

Given this, most commentators were keen to downplay any expectations that one quarter of good growth marked the start of a widespread recovery. "Following a downward correction in July, output is likely to move sideways or at most rise minimally," said Ralph Solveen of Commerzbank. Overall, the eurozone remains deep in the hole. "Output is still 3% below its peak and increasing at about 1%" a year, pointed out Hadas. "It's hard to believe in more than a feeble revival for now".

Recommended

Green finance is set to be the most powerful financial repression tool yet
Bonds

Green finance is set to be the most powerful financial repression tool yet

The government has launched its “green savings bond” that offers investors just 0.65%. But that pitiful return is in many ways the point of “green” fi…
22 Oct 2021
Equities are not a good inflation hedge
Economy

Equities are not a good inflation hedge

Institutional investors are definitely now worried about inflation. But they're not yet worried enough to flee to cash, says John Stepek
22 Oct 2021
Why fed-up workers are quitting their jobs
Economy

Why fed-up workers are quitting their jobs

Workers are leaving their jobs at an astonishing rate, especially in the US, leading to a shortage of workers. What will that mean for our economies? …
22 Oct 2021
China’s economy faces a triple shock
Chinese economy

China’s economy faces a triple shock

Power cuts, the pandemic and the property slowdown are slowing China's economy down.
22 Oct 2021

Most Popular

How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021
The after effects of the gas-price shock
Economy

The after effects of the gas-price shock

In the wake of the recent spike in the natural gas price, we can expect slower growth, an industrial recession – and a newly assertive Russia, says Ma…
17 Oct 2021