Euro zone GDP growth of 0.6% in Q2 is ahead of expectations

Economic growth strongest in the Netherlands, Latvia and Spain

Economic expansion will be weighed by European Central Bank policymakers who will soon begin to debate recalibrating monetary policy. Photograph: iStock

Economic expansion will be weighed by European Central Bank policymakers who will soon begin to debate recalibrating monetary policy. Photograph: iStock

 

The economy in the 19 countries sharing the euro currency expanded by more than previously forecast in the second quarter compared to the same quarter in 2016, the European Union’s statistics office Eurostat said on Wednesday.

Euro zone gross domestic product ( GDP) expanded by 0.6 per cent in the second quarter compared to the first, as previously estimated, but the annual figure was upgraded to 2.2 per cent growth, compared to 2.1 per cent previously.

The flash estimate for annual growth was also higher than the 2.1 per cent expected in a Reuters poll of 28 economists.

Compared to the previous quarter, economic growth was strongest in the Netherlands and Latvia, with the Spanish economy also growing above average.

While the German economy, the euro zone’s largest, expanded at the same pace as the euro zone average in the second quarter, France, and Italy lagged slightly behind.

ECB policy

Evidence of robust economic expansion will be weighed by European Central Bank policymakers who will soon begin to debate recalibrating monetary policy after years of extraordinary stimulus.

“With the economy maintaining a healthy pace of growth, the ECB should feel fairly confident about tapering its asset purchases next year,” economists at Capital Economics said.

The recovery in the bloc is gathering steam, with recent unemployment figures showing their lowest reading since 2009 and economic sentiment rising to a 10-year high in July.

Industrial output figures for June released earlier this week, however, showed a larger than expected drop.

Business and consumer confidence date due to be released at the end of August should paint a clearer picture as to where the euro zone’s economy is heading in the third quarter.

German GDP

The figures follow a preliminary estimate of German GDP growth in the second quarter on Tuesday, which shows that the Eurozone’s biggest economy maintained robust growth of 0.6 per cent.

Preliminary estimates for the French and Spanish economies showed their GDP expanding by 0.5 per cent and 0.9 per cent on the quarter, respectively.

Commenting on the Eurostat numbers, the Centre for Economics and Business Research (CEBR) said that with the currency bloc in expansion for the 17th consecutive quarter, analysts are looking for hints within ECB president Mario Draghi’s remarks for when to expect a tapering of the central bank’s asset buying programme.

This is due to expire at the end of the year but policy makers will decide on a potential extension between September and December, it said.

“However, as long as wage growth and inflation remain at their current unspectacular levels, the ECB will want to remain as flexible as possible and is unlikely to give away any premature hints. In terms of an interest rate hike, CEBR does not expect the ECB to move rates before 2018.”

- Reuters