Growth returns to eurozone with healthy rebound in second quarter

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The eurozone’s four largest economies have emerged from their historic pandemic-driven downturns and returned to solid growth in the three months to June, according to data released on Friday.

Germany, France, Italy and Spain all logged quarter-on-quarter expansions in output in the three months to June, and all but Germany outperformed economists’ expectations.

Gross domestic product in Germany rose 1.5 per cent from the previous quarter — below the 2 per cent expected by economists polled by Reuters but a return to growth after its 2.1 per cent contraction in the first three months of the year.

France reported economic growth of 0.9 per cent, while Italy expanded 2.7 per cent and Spanish output rose 2.8 per cent.

The data bolster analysts’ hopes that the eurozone is starting to put the disruption of the coronavirus pandemic behind it.

Economists expect the eurozone economy to continue to expand rapidly over the rest of the year, rebounding from its double-dip recession over the winter, despite the spread of the highly infectious Delta coronavirus variant, which is expected to account for 90 per cent of all of Europe’s Covid-19 infections by August.

“Vaccination rates are significant already and they are increasing steadily,” said Jean Pisani-Ferry, a fellow at the Bruegel think-tank in Brussels and at the Peterson Institute for International Economics. “Some renewed restrictions are likely, but I do not think governments will go for lockdowns as long as there is no risk for the hospital system to be overwhelmed.”

Having lagged behind other major economies’ rebound from the pandemic in the past year, the eurozone is expected to start closing the gap with second-quarter growth of between 1.5 per cent and 2 per cent when GDP figures for the bloc as a whole are released later on Friday.

Earlier this week, the US reported second-quarter GDP growth of 1.6 per cent from the previous quarter, while China said earlier this month that its economy grew 1.3 per cent in the same period.

China topped its pre-pandemic output level last year and the US did the same in the second quarter of this year, but the eurozone is only expected to achieve this by the end of this year.

Economists attributed Germany’s slower than expected expansion to the supply constraints its manufacturers — in particular the big carmakers — have been grappling with due to shortages of materials, such as semiconductors, and bottlenecks in container shipping.

Carsten Brzeski, head of macro research at ING, said German industry had been hit by “a long list of supply chain frictions”, citing the Suez Canal blockage earlier this year which disrupted global shipping. Delays in production and delivery of microchips and semiconductors had also contributed, he said, and warned there “could now be problems with the [German] waterways due to heavy rains”.

France’s slightly better than expected 0.9 per cent growth was accompanied by an upward revision of its first-quarter GDP figures to show the economy flatlined, which meant the country narrowly avoided a double-dip recession over the winter months.

The French economy was boosted by a 1.1 per cent rise in investment and a 0.9 per cent jump in household spending, its national statistics agency said.

Italian GDP rebounded to 2.7 per cent growth in the second quarter, outstripping economists’ expectations of 1.3 per cent. And its unemployment rate dropped more than expected in June to 9.7 per cent, down from 10.2 per cent in May, separate figures showed.

Spanish second-quarter GDP rose 2.8 per cent, outstripping the 2.2 per cent expected by economists and a sharp rebound from its first-quarter decline of 0.4 per cent.

After a slow start, vaccinations in the EU have accelerated in recent weeks and on Tuesday the bloc overtook the US in the number of jabs administered per 100 people, which reached 102.6 in the EU against 102.4 in the US, according to Our World in Data.

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