Eurozone economy expected to slow to 0.2% in the second quarter – The Economic Journal


Growth in the eurozone economy is likely to have slowed to 0.2% in the second quarter after growing 0.4% in the first three months of the year, analysts estimate. Global uncertainty and sluggish industrial momentum continue to penalize the single currency economy, whose performance will be known Wednesday.

"The data published so far on the second quarter were somewhat disappointing, since the gloomy export outlook continues to weigh on the industrial sector, which contrasts with the strong retail sales," said a note of research from BBVA. Economists at the institution expect Eurozone Gross Domestic Product to fall 0.2 percentage points (pp) in the chain between April and June.

Although not yet known the evolution of the GDP of all countries of the euro zone – the flash estimate of Portugal will be announced August 14 -, data released Tuesday on the French economy point to underperform, with a 0.2% chain expansion, 0.1 pp less than in the last quarter, penalized by a decline in private consumption (0.2%).

The trade war between the United States and China continued to weigh heavily on the global economy and to penalize the eurozone during the second quarter and no improvement is yet to be seen.

“At this moment, a recovery in exports and industrial activity is not yet noticeable,” says Ann-Katrin Petersen, vice president of global economics and strategy at Allianz Global Investors. “With a 15.4% share of total trade (2018), China is the EU's second largest trading partner after the United States (17.1%),” he adds.

Given the uncertainty and after the European Central Bank has kept interest rates unchanged at record lows, but signaled that may come down from current levels, analysts are already looking to the third-quarter performance.

“Concerns about the eurozone economy persist in the third quarter, with economic sentiment continuing to decline in July. As consumer confidence has improved, companies share a view of the deteriorating sentiment across sectors, ”says Bert Colijn, senior economist at ING. The expert points out that there are some reasons for a "cautious optimism", with a slight improvement in demand and employment.

BBVA projects the eurozone economy to slow from 1.9% to 1.1% in 2019 and “remain relatively stable” at 1.2% in 2020, driven by easing monetary policy and fiscal stimulus, which should offset shocks of trade war and the industrial sector.

The institution's economists are, however, more pessimistic than the European Commission, which forecasts growth of 1.2% for the eurozone economy this year and 1.4% by 2020.



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