Germany, the eurozone’s largest economy, was once again an outlier, falling 0.1% quarter-on-quarter, disappointing hopes that it had finally broken out of stagnation. Economists had expected GDP to rise by 0.1%.
That wasn’t the only bad news for the German economy. Inflation rose slightly again in July to 2.6%, rather than falling to 2.4% as expected, raising expectations that Germany’s long period of stagflation will continue into the coming quarters. S&P and Ifo Institute business surveys have already pointed to further deterioration early in the third quarter.
olympic dream
Analysts said there was a risk that Germany’s poor performance could weigh on performance across the region in the coming months. The latest survey data suggests that other eurozone countries may not be able to compensate for Germany’s weaknesses for very long. The S&P Purchasing Managers’ Index was 50.1 in July, down from 50.8 in June, but still just above the 50-point threshold that indicates economic contraction.
In an interview with CNBC on Monday, ECB President Christine Lagarde expressed hope that the Paris Olympics “may bring more confidence, which we very much need at this moment.” However, the European Commission’s business confidence index revealed a slight deterioration in confidence in the eurozone as a whole and a notable deterioration in France.
“The eurozone economy is a lot like the water quality of the Seine,” ING head of macro Carsten Brzeski said after the men’s triathlon at the Paris Olympics was postponed due to poor water quality. “There may be days when I look okay, but overall it’s bad enough to keep me worried.”
