Daily Management Review

Eurozone GDP Misses Forecast in Second Quarter, France Germany Underperform


Eurozone GDP Misses Forecast in Second Quarter, France Germany Underperform
The Eurozone economy fared below expectations in the first quarter, data released on Friday showed.

The combined gross domestic product (GDP) of the 19 countries in the Economic block grew 0.3% quarter-on-quarter in the three months to the end of June, which represents a 1.2% climb year-on-year, according to figures published by European Union's statistics office in its first estimate.

Analysts had expected a 0.4% gain on the quarter and a 1.3% rise from the corresponding period in 2014 and both the figures failed to meet up to expectations.

On Wednesday, a report indicated that there was shrinkage in the industrial output by more-than-expected in the month of June. The overall economic figures were released on Friday.

"With the recovery too weak to generate inflation, the ECB is set to maintain and perhaps extend its policy support," an analysts at Capital Economics said.

The below expected performance in the economic growth, Eurozone is also troubled with a subdued inflation rate. There was a fall of 0.6% in the consumer prices in the Eurozone fell in the month of July, according to figures released by Eurostat.
However for the rest part of the first quarter, the consumer prices have remained stable at 0.2%. Both the July figures and the overall inflations figures were in line with expectations but remained below the European Central Bank’s medium-term target of 2%.
Food products had the biggest downward impact as the prices of food items like energy, milk, cheese and eggs fell. On the other hand, prices of restaurants and cafes, tobacco and rents increased the most among the commodities, said the data from the EU's statistical office.
"Overall, we do not see major reasons to change our long-held view that Eurozone inflation, while on an upward trend due to energy-related base effects, will remain subdued over the next few months, as the large amount of economic slack, the adjustment still under way in a number of countries and persistently low inflation expectations continue to damp prices," BNP Paribas said reacting to the overall economic scenario in light of the inflation rate figures.
The analysis firm further stated that the ECB staff projections assumed a steeper increase in core inflation and there was a high risk of the expectations being undershot.

There was bad news from France and Germany, two of the major economies of the Eurozone. While analysts had expected a very slight growth of anywhere between 0.2% to 0.3% for the French economic growth, it simply flatlined in the second quarter. This was clearly against the modest rate of growth that was predicted.
The revised rate of growth in the first quarter for the second quarter was pegged at 0.7%.

Inventories was the primary cause of the growth results as final domestic demand expanded only 0.1% quarter-on-quarter.
"Having highlighted downside risks to our forecast, this is weaker than what we and the consensus had expected, as well as domestic institute projections," said Barclays.
The German growth data was 0.4% lower than the preceding quarter. Compared to re French growth rate of 1%, Germany has been growing at 1.6%.  

Despite a slight expansion, the Gross domestic product rose by only 0.4% from the previous quarter which was short of expectations for a 0.5% growth.
 (Source: www.digitallook & wwwreuters.com)