Consensus-beating GDP figures from the Eurozone's largest economies were not enough to prevent the region's economy as a whole contracting last quarter.
Consensus-beating GDP figures from the Eurozone’s largest economies were not enough to prevent the region’s economy as a whole contracting last quarter.
Eurozone GDP contracted by 0.2% in the second quarter, following a flat first quarter and 0.3% shrinkage in the closing quarter of 2011.
The most recent Eurozone number more or less accorded with expectations.
For this year the European Commission forecasts a 0.3% contraction for the 17-nation bloc.
Azad Zangana, European economist at Schroders, said: “Overall, the story of a resilient core and a floundering periphery continues. Looking ahead, the resilience of the core economies is likely to be tested in the coming quarters, with leading indicators suggesting slowing order books and falling businesses confidence.
“The outlook remains very uncertain given the nature of the sovereign debt crisis, although we expect a further deterioration in the growth numbers in the third quarter, before a turning point at the end of the year.”
German GDP growth slowed from 0.5% to 0.3% in the second quarter – slightly above consensus estimates of 0.2% – while French GDP was flat for the third consecutive quarter. The Netherlands produced 0.2% more goods and services last quarter than the previous period.
All three countries beat what was widely expected of them last quarter.
Chris Bullock, co-manager of the Henderson Horizon Euro Corporate Bond Fund, described the headline GDP data for Germany and France as “mildly positive, but one must bear in mind that this reflects the past not the future, and investors would be wise to look forward to events coming up in September and beyond.”
He added leading indicators have been weak over recent months, with manufacturing PMI numbers “firmly in the contraction zone, and even in the case of France and Germany, fallen to levels not seen since late 2008 /early 2009.
“Today’s data releases also illustrated a continued deterioration of the German ZEW economic sentiment survey,” he added.
Those looking forward rather than backwards will also be awaiting the German constitutional court voting on the legality of the ESM next month, general elections in the Netherlands, the start of the election campaign in Italy, 2013 budget in France, and outcome of the independent banking audit in Spain.
Bullock said Mario Draghi’s pledge to do “what it takes” at the ECB to save the euro has improved sentiment, “but as long as it depends on strict conditionality, we will need to see the likes of Spain formally request financial aid before they can act. It is easy to imagine that the respective governments of Spain and Italy will be reluctant to accept onerous terms, so this looks to be a saga that may have many twists and turns still to come.
“We remain in a world of ultra-low rates, but ultra-low growth, as the great deleveraging slowly plays out. In this environment, demand for fixed income looks likely to remain high, setting a favourable scene for corporate debt issuers and investors alike.”