Event
Real GDP expanded by 0.3% quarter on quarter in the second quarter of 2013. In year-on-year terms, output still contracted by 0.7%.
Analysis
Preliminary data show that the euro zone economy as a whole grew by 0.3% in the second quarter, following a decline of 0.3% in the previous quarter. This means that the euro area came out of recession in April-June, having been in a “double-dip” recession since the fourth quarter of 2011. Hence, this ended the longest economic contraction on record for the single currency zone (with six consecutive quarterly declines in euro zone GDP).
The euro zone rebound was driven by Germany (the currency area’s largest economy), where output rose by a robust 0.7% quarter on quarter. However, the euro zone’s second-largest economy, France, also performed well in the second quarter, growing by 0.5%. However, Italy (-0.2%), Spain (-0.1%) and the Netherlands (-0.2%) remained in recession, highlighting persistent divergences in euro area growth performance, although the pace of contraction eased in all three economies. Cyprus (-1.4%) and Greece (which does not record quarter-on-quarter figures, but the year-on-year figure showed a 4.6% drop) continued to struggle, but Portugal (which along with Cyprus, Greece, Ireland and Spain is a recipient of EU/IMF bail-out funds) pulled out of recession, with robust growth of 1.1%.
The latest figures chime with other data that had shown a stabilisation in the euro zone economy, such as business surveys and the purchasing managers’ index. However, the Economist Intelligence Unit remains cautious with regard to the euro area’s economic prospects for the second half of the year and beyond. Domestic demand in many parts of the currency bloc will remain constrained by elevated unemployment, fiscal austerity (especially in the euro zone periphery), high debt levels and persistently tight credit conditions for many small and medium-sized enterprises in the struggling economies. Some support for growth will come from external demand as the global economic recovery continues, but we still expect only subdued growth in the second half of the year for the euro area as a whole. The recovery is likely to remain slow and gradual in 2014.
Impact on the forecast
With small upward revisions to our real GDP forecasts for Germany and France in 2013 likely in light of the second-quarter data, we are likely to raise slightly our full-year forecast for euro zone real GDP (currently a contraction of 0.8%). Risks to this forecast are balanced, with upward potential if global growth surprises on the upside, but also downward risks from excessive fiscal retrenchment and weak credit conditions.
The Economist Intelligence Unit
