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The Eurozone economy grew more than expected in the second quarter, expanding 0.3 per cent and allaying fears that the nascent recovery in the bloc may be running out of steam.
Tuesday’s gross domestic product growth figure followed 0.3 per cent over the first quarter and was above the forecasts of economists polled by Reuters, who expected growth to slow slightly to 0.2 per cent.
In June, the European Central Bank became the first major central bank to start cutting interest rates. It forecast that demand would steadily recover in the bloc this year as inflation slowed, wages kept rising and global trade picked up.
However, recent business surveys have indicated that the Eurozone economy has been affected by geopolitical tensions, weaker global growth and fragile consumer confidence.
Economists said Tuesday’s data marginally increased the chances of the ECB cutting rates again at its next meeting.
“Judging by the balance of risk on growth and the trajectory of inflation, the ECB will definitely cut in September,” said Claus Vistesen at Pantheon Macroeconomics.
Frederik Ducrozet at Pictet Wealth Management said: “Today’s set of data doesn’t change the big picture of a resilient albeit not booming economy, and a gradual disinflation process.”
He added that there was “no reason for the ECB to change course” from continuing gradually to lower interest rates.
The second-quarter GDP figure was slightly weaker than the 0.4 per cent the central bank had forecast.
Germany’s rate-sensitive two-year bond yield initially fell on Tuesday morning before rising to 2.6 per cent — close to a five-month low. Bond yields fall as their prices rise.
The euro edged higher, trading 0.1 per cent up against the dollar at $1.0834.
Figures released on Wednesday are expected to show that Eurozone inflation slowed slightly from 2.5 per cent in June to 2.4 per cent in July.
Spanish inflation fell from 3.6 per cent in June to 2.9 per cent in July. However, German inflation ticked up to 2.6 per cent, exceeding the forecasts of economists in a Reuters poll, who had predicted a drop from 2.5 per cent in June to 2.4 per cent.
In a release earlier on Tuesday, data showed the German economy dragged down the rest of the bloc, with output falling 0.1 per cent in Europe’s largest economy in the second quarter.
The federal statistical agency said the decline reflected lower investment in equipment and buildings. Italy’s economic growth also slowed to 0.2 per cent, as higher services output offset weakness in industry and agriculture.
However, the French economy grew slightly faster than expected at 0.3 per cent in the three months to June, mainly because of a boost from external trade, while France’s first-quarter performance was also revised up to 0.3 per cent.
Spain’s economy outperformed expectations, growing at a faster than forecast pace of 0.8 per cent in the three months to June, thanks to strong consumer spending and exports.
Analysts worry that France’s inconclusive parliamentary election will create a political vacuum at the heart of Europe, hampering efforts to reduce high debt and deficit levels, eroding consumer confidence and weighing down on business investment.
Pictet’s Ducrozet said Eurozone growth would have been only 0.2 per cent if the 1.2 per cent jump in Ireland’s GDP were excluded. The country’s growth is volatile because of the outsized influence of big US technology and pharmaceutical groups operating there.
He also said French GDP was boosted by “a ship delivery”.
ECB president Christine Lagarde said this month that its next meeting in September was still “wide open” and its rate decision would depend on how economic data developed.
