Growth returns in the euro zone with a healthy rebound in the second quarter

Updates from the Eurozone economy

Sign up for myFT Daily Digest to be the first to know about economic news in the Eurozone.

The eurozone economy rebounded from its historic slowdown due to a pandemic, growing faster than expected by 2% in the three months leading up to June, data showed on Friday.

The quarterly increase in the eurozone’s gross domestic product was above the 1.5% expected by economists polled by Reuters and it is the first time that the bloc has exceeded growth in the United States and China since the start of the pandemic last year. It also marked a strong rebound from the block’s 0.3% contraction in the first quarter.

Economists said the growth figures were the latest signal that the eurozone was firmly on the road to recovery. Business and consumer confidence rebounded strongly, boosted by the lifting of lockdowns in May and the rollout of vaccination programs, while retail sales returned to pre-pandemic levels.

Germany, France, Italy and Spain all saw quarterly expansions in output in the three months ending in June, and all but Germany have beaten economists’ expectations.

Economists blamed supply constraints, which have left manufacturers short of materials such as semiconductors, for slowing Germany’s growth to 1.5%. This was lower than the 2% expected by economists polled by Reuters, but a marked improvement from the 2.1% contraction in the first quarter.

Supply bottlenecks have also pushed up the prices of manufactured goods; Eurozone inflation has risen faster than most economists expected to reach 2.2% in July, according to separate figures released on Friday, from 1.9% in June and its highest level since October 2018.

This puts it above the recently raised European Central Bank inflation target of 2%. But core inflation – excluding the more volatile prices of energy, food, tobacco and alcohol – fell from 0.9% to 0.7%. The ECB expects inflation to fall again next year.

The euro area labor market, which has been largely shielded from the impact of the pandemic by government leave schemes, has seen its biggest improvement in more than a year, with the number of unemployed falling by 423 000 to 12.5 million in June, with the bloc’s unemployment rate falling from 8 percent to 7.7 percent.

Economists expect the euro area economy to continue to grow rapidly over the remainder of the year despite the spread of the highly infectious variant of the Delta coronavirus.

“Vaccination rates are already high and they are increasing steadily,” said Jean Pisani-Ferry, member of the Bruegel think tank in Brussels and the Peterson Institute for International Economics. “Some renewed restrictions are likely, but I don’t think governments will opt for closures until there is a risk of the hospital system being overwhelmed.”

The United States on Thursday reported 1.6% GDP growth in the second quarter from the previous quarter, while China said earlier this month that its economy grew 1.3% in the past. the same period.

China exceeded its pre-pandemic level of production last year and the United States did the same in the last quarter, but euro area GDP is still 3% below its pre-pandemic level. crisis and should only catch up by the end of this year.

Carsten Brzeski, head of macro research at ING, said the German industry has been hit by “a long list of supply chain frictions” and warned that “there could now be problems with the [German] streams due to heavy rains ”.

France’s slightly better-than-expected growth of 0.9% was accompanied by an upward revision to its first-quarter GDP figures to show the economy has stagnated, narrowly avoiding a double winter recession. hollow. The French economy was boosted by a 1.1 percent increase in investment and a 0.9 percent jump in household spending.

Italy’s GDP rebounded to 2.7 percent growth, beating economists’ expectations of 1.3 percent. Loredana Maria Federico, economist at UniCredit, cited “the resumption of activity in services and household spending, which had been hampered by restrictions to limit the spread of Covid-19”.

Spain’s second-quarter GDP grew 2.8%, exceeding the 2.2% expected by economists in a sharp rebound from its 0.4% drop in the first quarter. This performance was fueled by a 6.6% increase in Spanish household consumption, which offset the decline in investment.