The eurozone moved closer to its second recession in three years after figures released this week showed GDP shrank by 0.2% in the second quarter as economies in Greece, Italy, Spain and Finland contracted. Germany and France bucked the trend, with the German economy expanding 0.3% while French GDP flatlined. Stockmarkets reacted positively, with the FTSE EuroFirst 300 rising 0.5%.
What the commentators said:
The eurozone may have avoided the “technical definition of a recession” of negative quarter-on-quarter GDP because growth was flat, said Howard Archer of IHS Global Insight, but “to all intents and purposes” it is in recession. What’s more, given that the region is “struggling” against tight fiscal policy, subdued economic activity, high unemployment and the sovereign debt crisis, GDP is likely to fall again in the current quarter.
“Man cannot live on bread alone” and nor can the eurozone rely solely on Germany, said Richard Barley in The Wall Street Journal. Only Germany saved the region’s economy from greater contraction. But, given that economies that contribute 60% of GDP are “stagnant or contracting… the outlook remains bleak”. Greece is in its third year of recession, while Portugal’s economy has contracted for seven consecutive quarters, Italy’s for four and Spain’s for three.
Leading indicators “offer little reason for hope” and as long as the debt crisis continues, growth will be “volatile”. Indeed, there is “not much growth around”, concluded the FT’s Lex. Any increase in interest rates following a sudden eurozone recovery would “hit equities hard”.