Eurozone: Economy and inflation „running out of steam“ – Italy remains growth taillight

Economic growth in the euro zone slowed markedly in the spring. At a meager 0.2% compared with the previous quarter, growth was only half as high as in the first quarter of 2019. Details are not yet available with the preliminary estimate. However, it appears that domestic demand continued to be supportive, while net exports tended to slow. This is consistent with the general picture of a rather difficult international environment hampered by geopolitical cyclical risks and protectionist tendencies. A guarantor for steady domestic demand in the euro zone remains – at least for the time being – the well-functioning labour market and gradually rising wages. But the ongoing boom in the construction sector is also maintaining investment activity.

First country results had already indicated the weakened quarterly result for the euro zone. Economic growth in France fell from 0.3% to 0.2%. Italy is stagnating and is therefore likely to remain one of the worst performers in the currency area. Although Spain will once again be one of the front ranks of the stronger growth engines with 0.5%, growth here too was lower than in the first quarter. Belgium and Austria, with slower rates of 0.2% each, cannot escape the general economic moderation in the euro zone either.

The question of how the German economy, which is particularly affected by the downturn in the mood in industry, has performed remains an exciting one. Patience is still required here, as the data on Germany’s gross domestic product (GDP) will not be published until 14 August, along with most other eurozone countries.

Uncertainty in the euro zone is likely to persist for the time being. This is supported by initial sentiment indicators for the third quarter, which point to a continuation of the subdued economic development. The industrial sector alone is no longer proving to be the brake pad. The climate in the service sector has also tended to deteriorate in recent months. Numerous risks could also destabilize growth in the short term. These include, among other things, resurgent trade disputes or risks in the course of possible Brexit turbulences. Should these uncertainties not materialise, however, a moderate growth rate of 1.0% is to be expected in the euro zone for 2019 as a whole.

Also with the consumer prices there is only little „steam in the boiler“. The harmonised inflation rate fell from 1.3% in June to 1.1% in July. Thus, the annual rate is increasingly moving away from the ECB’s target of an inflation rate of below but close to 2%. This feeds the speculation that ECB President Draghi, as one of his last official acts before his resignation in October, will once again loosely intervene in monetary policy. For 2019 as a whole, we do not see much room for improvement in the inflation rate. On average, it should be enough for 1.2%.

Rate this article

Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 5.00

Leave an answer

Your e-mail address will not be published. Required fields are marked *