The eurozone economy faltered in the second quarter, as labor strikes in France choked off a nascent pickup there and a troubled banking sector continued to hamstring the bloc’s efforts to haul itself out of a low-growth rut.
The figures suggested the eurozone economy was losing steam even before a spate of terror attacks and the UK vote in late June to leave the European Union, a worrying sign that increases the likelihood that the European Central Bank will expand its monetary easing later this year, NewsLookUp quoted Capital Economics as reporting.
Growth across the 19-country currency area slid to an annualized rate of 1.2% in the three months ended June, down from 2.2% in the previous quarter, the EU’s statistics agency said Friday.
The feeble recovery partly reflects weak demand for eurozone exports from large developing countries that are themselves struggling to revive flagging economies. Both France and Austria recorded no growth, according to national figures. Spain, the bloc’s fastest-growing major economy, slowed a notch, expanding at a quarter-on-quarter pace of 0.7%, down from 0.8%.
Job growth continued to be tepid: The unemployment rate remained stuck at 10.1% in June, according to figures released Friday, twice the level in the US business investment, which has picked up in recent quarters, remains subdued, as too many banks remain saddled with bad debts and unable to dole out big loans.
Debt Crisis
The eurozone had started the year relatively strongly, as lower energy prices gave households more spending power. But the recovery in oil prices in recent months snuffed out that growth driver in the second quarter, and the economy now appears on a trajectory to post the same modest growth rate as last year at best.
“We think eurozone GDP growth will slow further over the rest of the year,” said Jack Allen, an economist at Capital Economics.
Four years into a modest recovery, the eurozone remains weighed down by a debt crisis that forced five members into international bailouts. Its inability to sustain a faster growth pace underlines the limits of what monetary policy alone can accomplish.
The ECB remains as far away from meeting its inflation target—just under 2%—as it did in June 2014 when it launched the first in a series of stimulus packages that massively expanded its asset purchases and pushed interest rates into negative territory.
Eurostat on Friday said consumer prices in July were just 0.2% higher than in the same month last year, a slight pickup from the 0.1% rate of inflation recorded in June. The ECB’s target is an inflation rate of just under 2%.
