Spain's economy is expanding at fastest rate in the euro-area

Euro-area economic growth unexpectedly slowed last quarter the region’s three largest economies fell short of estimates, highlighting the fragility of the recovery amid uncertainty surrounding the global outlook.

Gross domestic product in the 19-nation region rose 0.3 percent, the European Union’s statistics office said on Friday. That fell short of the median prediction by economists that the 0.4 percent pace of the first quarter would be maintained. While German growth accelerated, the improvement was less than anticipated, and France’s economy stagnated.

With China jolting global markets by devaluing its currency and Greece on the verge of a new bailout program, the euro area’s nascent revival may yet struggle against the uncertain backdrop. European Central Bank policy makers meeting in July called the recovery “disappointing” and said they’re ready to adjust stimulus if needed, a summary of the discussions showed on Thursday.

The slowdown “could reflect some fallout from the Greek crisis and potentially weakness in the Chinese economy,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “Nevertheless, there are plenty of positives coming through and we think the euro-zone economy will regain momentum in the coming quarters.”

Germany Leads

The euro rose 0.3 percent against the dollar to $1.1180 as of 1:13 p.m. Frankfurt time. It has fallen about 8 percent this year. The Stoxx Europe 600 Index slipped 0.4 percent.

Germany’s economy grew 0.4 percent in the three months through June and Italy’s expanded 0.2 percent, the data on Friday showed. That compares with forecasts for 0.4 percent and 0.3 percent. In France, where the economy failed to register growth for the first time in a year, the expectation was that GDP would rise 0.2 percent.

Tom Rogers, an economist at EY in London said the divergence in growth is a “reminder that domestic economic reforms matter as much as eurozone-wide solutions.”

“Stagnation in France and near-stagnation in Italy underline that in both countries, firms and households remain deeply concerned about the future,” he said.

In Spain, the International Monetary Fund praised the government on Friday for its reforms and warned against any backtracking. The Spanish economy led growth in major euro-area nations in the second quarter, with GDP rising 1 percent in the period.

Greek Surprise

Also on Friday, data showed the Dutch economy barely grew, while Portuguese GDP climbed 0.4 percent, matching the pace of the first three months of the year. Preliminary Greek data on Thursday put its expansion at 0.8 percent, though that doesn’t capture the impact of the capital controls in July. The surprise surge, led by consumer spending and tourism, is seen by analysts as a blip amid a crumbling economy.

German growth was driven by net exports and private consumption, the statistics office said, while investment, especially in construction, was a drag. In France, consumer spending rose just 0.1 percent.

Marco Valli, an economist at UniCredit SpA in Milan, said the underlying trend in the euro area is “healthy” and he’s sticking to his forecast for 1.4 percent growth this year.

“With most of the developed world growing at reasonable pace and the bulk of past euro depreciation set to feed through in the second half, growth prospects in the eurozone remain favorable,” he said. “Chinese and Greek woes are very unlikely to derail the euro-zone recovery.”

Source: Bloomberg