Eurozone Q2 Economic Growth Tops Expectations

(RTTNews) - Eurozone economic growth topped economists' expectations in the second quarter, showing the biggest expansion in more than three years.

Propelled by robust German growth, the 16-nation bloc grew at a faster pace of 1% sequentially in the second quarter, following a 0.2% rise in the first quarter, preliminary data published by Eurostat showed on Friday. Economists had expected only 0.7% rise.

GDP  growth in the second quarter was above all driven by the massive boost from cyclical forces such as the global upturn and low interest rates, noted Christoph Weil, an analyst at Commerzbank. However, this speed in economic growth is unlikely to be sustained in the second half of the year as consolidation efforts in member nations with debt problems will increasingly have a dampening effect.

Year-on-year, the economy expanded 1.7%, more than double the first quarter's 0.6% increase. Consensus forecast was for 1.4% growth.

The recovery remains dependent on exports from the core economies, which look set to slow before long, according to Jennifer McKeown at Capital Economics. Looking ahead, the economist said the peripheral economies will continue to suffer from fiscal tightening and remain in, or return to, recession.

The EU27 growth figures were similar to that in euro area. The bloc grew by 1% sequentially after rising 0.2% in the first quarter. Annually, growth was 1.7% compared to a 0.5% rise in the first three months of this year.

Today's numbers are a clear sign that Eurozone has coped with the sovereign debt crisis better than expected, ING Bank NV's Carsten Brzeski commented. Although several core Eurozone nations show promising developments, it is too early to become overly enthusiastic, the economist added. Fiscal consolidation and structural reforms will first weigh on growth before they can become growth-supporting, he said.

Among the member nations of euro area, only Greece recorded notable contraction. The German economy recorded 2.2% growth in the second quarter, the biggest since its '1991 reunification'. GDP growth in France accelerated to 0.6% and Italy recorded 0.4% growth. Lagging behind other major eurozone economies, Spain showed only 0.2% growth.

The second quarter strong growth as well as revisions to previous data should lift eurozone GDP for this year to at least 1.5%, confirming that in the first half the recovery in the region gained more momentum than previously expected, said Chiara Corsa at UniCredit Research. As headwinds will negatively weigh on GDP in the second half, overall growth will slow considerably. For 2011, the economist forecast 1.3% growth.