Forex Marketz Daily Forex News – Fully Markets Update
Article Summary:
- Germany’s GDP contracts 0.2 percent quarter on quarter.
- France’s GDP stalls out again showing no growth.
- This means that France’s economy will likely grow at 0.5 percent again this year and for that to happen we need to see a strng bounce in the fourth quarter.
First, the French gross domestic product (GDP) failed to expand in the second quarter. This comes after it stalled in the first three months. Now the GDP for Germany has come in and it has contracted 0.2 percent for the second quarter.
It is very unlikely France will even show a one percent growth for 2014. We will probably see another year of their economy growing around or near 0.5 percent. However, even for 0.5 percent we need a significant rebound for the final quarter of the year.
Complacency in the Eurozone and with their economic state is becoming serious. Especially in light of this recent data from the two largest economies of the economic bloc. These numbers are hardly painting a pretty picture and things could get worse.
The GDP numbers for Q2 have done nothing to improve the meager 0.2 percent growth rates for the first half of the year and will do nothing to quell concerns about deflation and economic stagnation in the European Union. Between April and June, we are expecting the GDP to grow by a poultry 0.1 percent from the second quarter. Now with Germany’s contraction, this is not very likely.
We expected Germany to show faltering growth due to either a very strong first quarter or very high construction figures. Investors are not very confident as last week’s ZEW figure showed about the overall health of the German economy. Further, France is very unlikely to show and growth support as internal pressures are mounting to enact serious economic reforms which could have unwelcomed political consequences. Eurozone economic growth, to put it mildly, is perilously low. It is extremely vulnerable to even the smallest setbacks. This means, that growth is way too low to make any meaningful difference and we still see high unemployment and very high debt levels across the currency union.
While Spain has returned to growth, Italy has sunk back into a recession and France is not far behind. Both France and Italy have been very slow if not hesitant to enact promised structural reforms. To make matters worse, there are very dark clouds just over the horizon. Q2 figures will not help the Asset Quality Review of EU banks and sanctions against Russia are likely to be detrimental to future growth. This makes the European Central Bank (ECB) growth forecast of one percent for this year look very hopeful and any reduction of this figure or miss to put more pressure on them to start printing money to fuel the economy.
There is a bright spot. French consumers were optimistic as household consumption rose 0.5 percent last quarter. They fell 0.5 percent in Q1, so the losses were wiped out. However, output in manufactured goods was down. They lost one percent in the second quarter and this is down from the 0.8 percent expansion in the first quarter.
The economies of Germany and France equal over 50 percent of the combined economies for the EU. The French economy has teetered back and forth from expansion and contraction for the last two years. This has all but destroyed President Francois Hollande’s promise for lower unemployment. The Eurozone is in trouble. The question remains: How does the ECB right the ship?
