Eurozone recovery stalls, French and German economies weaken

The Eurozone economy was held back by weaker investments, strong deflationary pressures and uncertainty over the conflict in Ukraine.
By Ananth Baliga   |   Aug. 14, 2014 at 1:48 PM   |   Comments

FRANKFURT, Germany, Aug. 14 (UPI) -- The Eurozone continued its shaky recovery, registering almost no growth in the last quarter, as its strongest economy, Germany, shrank 0.2 percent.

The 18-member union grew at a lethargic 0.2 percent annual rate in the second quarter, according to Eurostat, compared with a 0.8 percent annual rate for the first quarter. Germany, which has been the only major economy to hold strong during the global recession, registered a 0.2 percent contraction, while France had zero growth for the quarter.

European markets and bonds fell as national figures started to trickle out. The weak growth leaves the region in a continuing struggle to deal with 18 million unemployed people in the region and a drastic drop in consumer prices, leading to an outright deflation.

"Not only does this render the E.C.B.'s anemic growth forecast of 1 percent for 2014 unrealistic," Lena Komileva, chief economist at G Plus Economics in London, told the New York Times, "but it is hard to see just what will keep the recovery growing."

Consumer prices grew only 0.4 percent from a year earlier across the region, suggesting that deflationary pressures were still strong.

Uncertainty in Ukraine and a possible escalation in the conflict also contributed to the slow growth, as the Eurozone continues to place economic sanctions on Russia. The region's sluggish growth also affects the U.S. and major Asian markets as demand for goods will be low from Europe, possibly affecting growth in these markets.

"We're seeing the crisis worsen in Ukraine and Russia as well as a difficult political situation in the Middle East," said Kasper Rorsted, chief executive of Henkel AG, in an earnings call Tuesday. "The situation remains volatile, and we don't see it changing any time soon."

There was some good news, as Spain logged 0.6 percent growth, growing from the 0.4 percent it registered in the first quarter. After contracting in the first quarter, Portugal returned to growth, with Cyprus and Greece close to breaking even.

Thursday's numbers follow Japan's growth numbers, which had the world's third-largest economy shrinking, on account of an 8 percent sales tax that came onto effect April 1.

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