Trouble in Europe: GDP Flatlines

Germany 2Q GDP -0.2%; France and EU-18 at Flat Zero

Econintersect:  The two leading economies in the 18-country Eurozone went nowhere economically in the second quarter, except lower.  Germany just issued a preliminary GDP reading down from the first quarter by 0.2%.  The expectation had been for a reading of -0.1%.  Year-over-year GDP increased by a meager 0.8%.  France has reported a preliminary reading for GDP growth of 0.0%, zilch.  This is the second quarter in a row with exactly zero GDP growth for France.  Expectation had been for a slight expansion of 0.1%.  For the entire 18 nation Eurozone the GDP growth for the second quarter was exactly 0.0%.

There was an absolutely amazing quote by Bloomberg from Francois Cabau from Barclays Capital:

“France isn’t threatened by an actual recession but the recovery will remain very weak in the months ahead.”

Doesn’t two quarters of no GDP gain threaten a recession?  Both quarters are but a hairsbreadth away from recession.  Econintersect guesses that it may be another case of hope springing eternally.

Italy can’t make the same rationalization as France.  The Italians reported the second consecutive quarter of GDP contraction last week.

Of the four largest Eurozone economies, only Spain is holding above high tide.  Two weeks ago Madrid reported a preliminary GDP growth number of 0.6%.  However, analysts are worried that increasing deflation in Spain may detract from GDP going forward, holding down third and fourth quarter growth.  So projections are that Spain might stay on the positive growth side of the ledger but possibly at a lower level and that may not be enough to hold the entire EU-18 above water.

Also announced this morning, the EU-18 CPI (Consumer Price Index) contracted by 0.7%.  The expectation had been for -0.6%.  Year-over-year CPI inflation was just 0.4%.

The patient has flatlined.  Calling Dr Draghi, STAT!

John Lounsbury

Sources:

• German GDP -0.2% vs. -0.1% forecast (Investing.com, 14 August 2014)

• France Scraps Deficit Goal After GDP Unexpectedly Stagnates (Mark Deen, Bloomberg, 14 August 2014)

• Euro-Zone GDP — Live (Phillipa Leighton-Jones, The Wall Street Journal, 14 August 2014)

• Italy Falls Back Into Recession, Raising Concern for Eurozone Economy (Jack Ewing and Gaia Pianigiani, The New York Times, 06 August 2014)

• Spain’s Economy Grows Faster Than Expected, But CPI Flags Deflation Threat (Olivia Crellin and David Roman, The Wall Street Journal, 30 July 2014)