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Eurozone Contraction Overpowers Germany’s Meager Growth

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Although the German economy continued to report growth in the second quarter, that was not enough to save the eurozone as a whole from shrinkage.

Reuters reported Tuesday that Germany’s economy managed to grow 0.3% in Q2, and even France managed to remain flat rather than contracting, but the two together were not enough of a bright spot to keep afloat the economy of the 17-country bloc. The eurozone contracted by 0.2%, and looked to promise further gloomy news as Germany’s ZEW sentiment index, which acts as a predictor rather than looking at results achieved, dropped for the fourth month in a row.

Austria and the Netherlands grew 0.2%, while Finland shrank 0.7%. Portugal shrank 1.2%, while Spain contracted 0.4% and Italy 0.7%

After a flat Q1, the eurozone’s drop in Q2 indicated that the struggle is not over to contain the fiscal woes of the group, and economists expect that the downward trend will continue.

“It was a touch better than we expected, but I think overall it confirms the idea that the eurozone is in a recession phase,” Aline Schuiling said in the report. Schuiling, economist at ABN AMRO, was quoted saying, “What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising. Policymakers are moving very slowly. There are limited prospects for growth in the eurozone. We expect another contraction in Q3.”

While Germany has been chugging along steadily, expectations are that the trend can’t continue forever. Joerg Kraemer at Commerzbank said in the report, “Growth turned out to be pretty solid. But this could be the last positive piece of news out of Germany for some time.”

He added, “The German economy could contract in the summer. It is fundamentally in good structural shape, but can’t decouple from the recession in the eurozone, plus the global economy has also shifted down a gear.”

France is expected to contract in Q3 as well, according to its central bank. Finance Minister Pierre Moscovici was quoted saying, “These figures are not excellent, but at the same time France is not in recession while the majority of its European partners are.”


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