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The eurozone economy expanded by a better-than-expected 0.3% in the second quarter, allaying fears that the eurozone’s nascent recovery is losing momentum.
Gross domestic product (GDP) growth on Tuesday continued at 0.3% from the first quarter, exceeding economists polled by Reuters who expected it to slow slightly to 0.2%.
In June, the European Central Bank became the first major central bank to cut interest rates. It predicted a steady recovery in regional demand this year as inflation slows, wages continue to rise and global trade recovers.
However, recent business surveys show that the eurozone economy is affected by geopolitical tensions, a weak global economy and fragility in consumer confidence.
Economists said Tuesday’s data made it slightly more likely that the ECB would cut rates again at its next Governing Council meeting.
“Given the balance of risks to growth and the trajectory of inflation, there is no doubt that the ECB will cut interest rates in September,” said Klaus Bystesen of Pantheon Macroeconomics.
“Today’s set of data does not change the overall picture of a resilient, if not buoyant, economy and a gradual deflation process,” said Pictet Wealth Management’s Frédéric Ducrozet.
He added that there was “no reason for the ECB to change course” from continuing to cut interest rates in stages.
Gross domestic product (GDP) growth in the second quarter was slightly lower than the central bank’s forecast of 0.4%.
Yields on Germany’s interest rate-sensitive two-year bonds initially fell on Tuesday morning, but have since risen to 2.6%, near a five-month low. As bond prices rise, yields fall.
The euro rose slightly, trading 0.1% higher against the dollar at $1.0834.
Statistics to be released on Wednesday show that inflation in the euro zone is expected to slow slightly from 2.5% in June to 2.4% in July.
Spain’s inflation rate fell to 2.9% in July from 3.6% in June. But Germany’s inflation rate rose to 2.6%, beating economists polled by Reuters who had expected it to fall to 2.4% from 2.5% in June.
Data released on Tuesday showed output in Europe’s biggest economy fell by 0.1% in the second quarter, as the German economy dragged down the rest of the world.
The Federal Statistical Office said the decline reflected lower investment in equipment and buildings. Italy’s economic growth rate also slowed to 0.2% as growth in services production offset weakness in industry and agriculture.
However, France’s economy grew by a slightly faster-than-expected 0.3% in the three months to June, largely due to a boost from foreign trade, and the country’s first-quarter results were also revised upward to 0.3%.
Spain’s economy outperformed expectations thanks to strong consumer spending and exports, beating expectations for growth of 0.8% in the three months to June.
Analysts say France’s inconclusive parliamentary elections have created a political vacuum in the heart of Europe, hampering efforts to reduce high debt and deficit levels, undermining consumer confidence and weighing on business investment. I am concerned that this will happen.
Pictet’s Ducrozet said excluding Ireland’s 1.2% rise in gross domestic product (GDP), the eurozone would have grown by just 0.2%. The country’s growth has been unstable due to the heavy influence of large US technology and pharmaceutical companies operating in the country.
He also said France’s gross domestic product (GDP) was boosted by “ship deliveries.”
ECB President Christine Lagarde said earlier this month that the Governing Council’s next meeting in September “has not yet been held” and that interest rate decisions would depend on developments in economic data.
