Investment, Consumer Spending Boosts Eurozone Economy

Consumer spending and business investment kept the eurozone economy humming along in the second quarter, with the wheels greased by the European Central Bank’s ultra-loose monetary policy.

Capital spending added 0.3 point percentage points to GDP in the period, helping to offset a negative drag from net trade. There was also support from households, government spending and inventories, Bloomberg reported.

Overall, growth in the 19-country bloc clocked in at 0.4% during the period, matching a previous estimate from statistics office Eurostat.

Having experienced its fastest growth in a decade in 2017, the eurozone economy has lost some momentum so far this year. It may weaken further amid global trade dispute, rising protectionism and knock-on effects from political instability in places ranging from Turkey to Italy.

The ECB’s record-low interest rates and asset purchases have given additional help to the economy by fostering spending and employment gains. But that support will soon change, with policymakers planning to begin winding down parts of their stimulus from next month.

In the meantime, a full-blown trade war could negatively affect business sentiment and thereby stifle investment. Carmakers including Volkswagen, Daimler and BMW have warned about the fallout.

In what could signal the state of affairs deteriorating, US President Donald Trump told Bloomberg last week the European Union, with which the US has agreed a truce on countervailing duties, was “almost as bad as China, just smaller”.

Already, some numbers point to weakness heading into the second half of the year. Company expectations about business prospects have dropped to their lowest in two years and Germany has reported declines in both factory orders and industrial production in July.

Meanwhile, EU finance ministers battled Saturday over an increasingly controversial proposal to slap a European tax on US tech giants amid rising worries that it is ineffective and protectionist.

France for a year has rallied EU partners to draw up the tax which Paris says is necessary to ensure that global tech platforms such as Facebook and Google pay their fair share.

Paris fervently argues that the measure would be a popular accomplishment for the EU ahead of European elections next year, in which anti-Brussels populists could do well.

However, several northern EU countries led by Ireland argue that the tax would also punish European companies and stifle innovation.