The eurozone recovery gathers strength

759-girl-with-flag-634 — Some cheer at last from the eurozone

There was, for a change, good news from the eurozone this week. The second estimate of second-quarter GDP showed a rise of 0.4%, up from a first reading of 0.3%. The first quarter was also nudged higher, from 0.4% to 0.5%, the highest quarterly figure since 2011.

Last week, a composite PMI reading, a gauge of how both services and manufacturing are performing, edged up to a four-year high. Second-quarter growth in Spain reached 1%, contrasting starkly with stagnation in France. Meanwhile, Germany notched up exports worth €103.4bn in July, a new record. The trade surplus of €225bn also marked a new peak.

What the commentators said

But if China suffers a "serious and sustained slowdown", it will make life difficult for the eurozone, noted Raoul Ruparel on Forbes.com. Germany alone accounts for close to half of all EU exports to China. Germany is the locomotive of the eurozone, accounting for around 30% of the bloc's GDP. "Many of its exports drive import demand from other eurozone countries." Some of the latest market turmoil has not been factored into the latest figures, said Capital Economics, and the same goes for the recent rise in the euro.

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It doesn't help that the European Central Bank (ECB) could find its life more difficult, whether or not the US Federal Reserve raises US interest rates next week, said Paul Davies in The Wall Street Journal. If the Fed holds off, a stronger euro could continue to hamper European growth. But if it lifts rates, there could be another bout of jitters in emerging markets, in turn denting Europe's export prospects.

The ECB president may well have to step up his money printing programme if growth subsides and inflation stays weak. But that, as John Stepek noted in our free daily email Money Morning this week, would be good news for European equities.