Key Points:
- A preliminary estimate from Eurostat shows that Eurozone GDP growth slowed to 0.3% quarter on quarter (q/q) in the second quarter of 2015, compared with 0.4% q/q in both the first quarter of 2015 and the final quarter of 2014, the best performance since the second quarter of 2013.
- Year-on-year (y/y) Eurozone GDP growth improved to 1.2% in the second quarter of 2015 from 1.0% in the first quarter, 0.9% in the fourth quarter of 2014, and 0.8% in both the third and second quarters of last year. Overall Eurozone GDP growth was 0.9% in 2014, following contractions of 0.4% in 2013 and 0.7% in 2012.
- No details have been released of the component breakdown of second-quarter Eurozone GDP but it is evident that slower growth was due to softer expansion in domestic demand. Domestic demand was certainly behind slower growth in France and appeared to lack momentum in Italy.
- Despite weaker-than-anticipated second-quarter real GDP growth, IHS Global Insight continues to acknowledge that there are currently significant positive factors for the Eurozone economy, particularly very low oil prices, a highly competitive euro, substantial monetary policy stimulus, and less damaging fiscal headwinds.
- The Eurozone should be able to achieve GDP growth of 1.6% in 2015 and 1.9% in 2016, according to IHS Global Insight's July forecast. However, weaker-than-expected second-quarter GDP developments in France and Germany could trigger a modest downward revision to our 2015 growth projection in the August forecast update.
German growth improves but French and Italian economies slow
German
GDP growth accelerated to 0.4% q/q in the second quarter of 2015 from
0.3% q/q in the first, with the stronger second quarter apparently
underpinned by an improved export performance. Previously, the German
economy had expanded by a robust 0.6% q/q in the fourth quarter of 2014.
Annual German growth picked up to 1.6% in the second quarter from 1.1%
in the first three months of 2015.
In
contrast, GDP growth in France slowed markedly, with the economy
stagnating in the second quarter after a 0.7% q/q gain in the first
quarter (the best q/q growth rate since the first quarter of 2010).
However, annual French growth still edged up to 1.0% in the second
quarter. Nevertheless, the disappointing second-quarter GDP development
provides further support for our lingering concerns over France's
ability to generate and sustain decent expansion amid ongoing
competitiveness problems.
Meanwhile,
Italy managed GDP growth of 0.2% q/q in the second quarter after a 0.3%
q/q expansion in the first quarter. The economy was 0.5% larger when
compared with a year earlier, the best performance since mid-2011.
Despite real GDP growing for a second successive quarter, Italy is still
struggling amid structural rigidities and is lagging behind the
recoveries elsewhere in the Eurozone.
Spanish
growth strengthened to a particularly impressive 1.0% q/q from 0.9% q/q
in the first quarter of 2015 as its recovery continued to gain
traction. This was the best Spanish quarterly expansion rate since the
fourth quarter of 2007 and lifted y/y growth to an eight-year high of
3.1%.
Surprisingly,
Greece posted a 0.8% q/q gain in the second quarter, while an upward
revision to the first-quarter GDP data (from -0.2% q/q to stagnation)
implies that Greece was not in technical recession as previously
reported. However, it is evident that the major uncertainty hanging over
the country's future will take an increasing toll on economic activity.
Outlook and implications...
Despite
weaker-than-anticipated second-quarter real GDP growth, IHS Global
Insight continues to acknowledge that there are currently significant
positive factors for the Eurozone economy, particularly very low oil
prices, a highly competitive euro, substantial monetary policy stimulus,
and less damaging fiscal headwinds. Very low oil prices should continue
to help consumers' purchasing power, which is receiving a major boost
from very low inflation (and earlier deflation) across the Eurozone, as
well as boosting companies' margins.
Fiscal
headwinds across the Eurozone are now much reduced, while monetary
policy is now highly accommodative. The European Central Bank's
quantitative easing, which began last March, will hopefully augment the
interest-rate cuts and other liquidity-boosting measures introduced in
June and September 2014 to have a stimulative impact on economic
activity by keeping Eurozone bond yields relatively low, supporting bank
lending, and weighing down on the euro. There are currently signs
overall that credit conditions are easing across the Eurozone, although
they are still relatively tight compared with long-term norms.
Although
unemployment is still uncomfortably high across the Eurozone, it is
trending downwards, albeit at a slower pace. Importantly, consumer
confidence was relatively upbeat in June, helping to maintain hopes that
consumers will spend at a decent rate over the coming months,
significantly helping the Eurozone to at least sustain its recent
improved growth performance.
On
balance, we believe that the Eurozone should be able to achieve GDP
growth of 1.6% in 2015, which would be up from 0.9% in 2014. We see
Eurozone GDP growth improving further to 1.9% in 2016, according to the
July forecast. However, the weaker-than-expected second-quarter GDP
developments in France and Germany could trigger a modest downward
revision to our 2015 growth projection in the August forecast update.
