Europe News

Euro zone growth halves as France sees sharp slowdown in spending

The euro zone economy offered a mixed picture of health on Friday with the rate of growth slowing, the unemployment rate unchanged and a lackluster uptick in the inflation rate.

Data from the regional statistics body Eurostat showed euro zone gross domestic product (GDP) expanded 0.3 percent quarter-on-quarter (slowing down from a 0.6 percent expansion seen in the first three months of the year) and that unemployment in the 19-country bloc was unchanged at 10.1 percent in June.

Inflation remained low in July, ticking up 1 percentage point to 0.2 percent year-on-year.

The triple whammy of euro zone data reveal that the single currency area is still stuck with lukewarm growth, low inflation and stubbornly high unemployment levels in some of its member countries.

The halving in the region's economic growth rate was not altogether surprising, however, given a stalling in France's economy in the second quarter.

France stalls


French GDP figures released earlier Friday showed that growth was flat in the euro zone's second largest economy in the second quarter amid a sharp slowdown in household consumption, statistics office INSEE reported, after a 0.7 percent expansion in the first quarter. Many economists had predicted growth of 0.2 percent in the second quarter.

Meanwhile, Spain reported a robust 0.7 percent expansion in the second quarter, in line with forecasts.

Karen Ward, chief European economist at HSBC, said that the "strength of euro zone GDP growth in the first quarter was clearly in large part attributable to temporary factors" and that growth was likely to remain tepid in the second half of the year.

"In our view, growth in the second half of the year is likely to remain moderate as the impact of both Brexit and the recent terrorist attacks are more keenly felt in economic activity. It's worth remembering that the U.K. accounted for more than a fifth of euro zone goods export growth last year," Ward said in a note Friday.

Growth to slow further?

Germany will be hard hit by Brexit: HSBC
Germany will be hard hit by Brexit: HSBC

European Economist Apolline Menut from Barclays agreed, saying that growth would slow further as the U.K.'s vote to leave the European Union weighed on confidence, private consumption and investment.

"Composite PMIs (purchasing manager's index) only edged down and European Commission economic sentiment indicator ticked up. But most forward-looking components showed that expectations had resumed their downward trend, and we expect confidence to be further affected in the months to come," she said in a note Friday.

"Uncertainty is likely to weigh on investment, with a negative feedback loop on the labor market and private consumption. We also expect the de-stocking initiated in the second quarter of 2016 to continue in the quarters ahead, as firms adjust their production to a weaker environment."

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