Germany’s economy shrank for the first time since 2012 in the second quarter of this year, according to the German Federal Statistics Office. The German GDP fell 0.2% after rising 0.7% in the first quarter, below analysts’ expectations. The eurozone’s largest economy previously saw 0.8% growth in the first quarter, which analysts had expected to be threatened by the Ukraine crisis. Last week, European Central Bank President Mario Draghi admitted that the Ukrainian conflict posed a threat to the eurozone economy.
In France, GDP remained stagnant in the second quarter, despite expectations of 0.1% growth. Both French and German stock indices were down on the news, despite early gains in Asian markets. French officials have lowered their growth target for 2014, but remain firm that the nation will not fall into another recession, as was the case in Italy after it showed a contracting economy for the second quarter in a row last week.
French Economy Below Expectations
Investors and analysts had hoped for a gain in France’s GDP as the second quarter of 2013 provided easy comps and investors hoped that tensions in Ukraine would have minimal impact in the economy, which has diversified more towards Asian exports in recent years.
French Finance Minister has also slashed the nation’s outlook to 0.5%, while urging the ECB to use
[QUOTE] “all available means to fight deflation and bring euro to more competitive level.”
The call for looser monetary policy is at odds with the dominant stance of the ECB, which has been to fight inflation and encourage austerity in peripheral economies that it believed would be stimulative.
More recently, the ECB promised to offer 400 billion euros in low-interest funds that are designed to allow more small business loans throughout the economic bloc. Analysts believe the recent data could encourage the ECB to take its program one step further and begin quantitative easing.France also said it will likely not meet its budget deficit targets in 2014 as a result of sluggish growth and low inflation, which Sapin said was making the government unable to reach its public deficit target “despite completely controlling spending.”
Central EU Economies Shaken
The shrinking data in Germany and flat data in France indicates that economic weakness in the region is not restricted to smaller peripheral nations, but was manifesting itself in the largest economies in the eurozone.
The data also indicates that Europe’s economic recovery, which many analysts and politicians had argued was beginning in earnest in 2013, was failing to gain momentum. While recent sanctions against Russia have harmed Germany, who is a major trading partner with the eastern nation, some analysts have pointed out that Russian trade represents a small portion of Germany’s exports. At the same time, domestic demand has failed to accelerate.
The Center for Economics and Business Research (CEBR) has said that the crisis will have an impact on peripheral EU states for “years to come”, and now the CEBR is beginning to say that largest eurozone economies could face the same fate.
[QUOTE] “The risk that the French economy will lag behind its neighbors in enacting reforms is not a trivial one,” said Danae Kyriakopoulou, an economist at the CEBR. The CEBR also believes that a worsening state for the French economy could threaten to bleed into the rest of the eurozone, and possibly even endanger the euro itself. According to Kyriakopoulou, a crisis in France “could have dramatic consequences for the viability of the currency union and push the eurozone to breaking point.”
Origin:
http://www.economywatch.com/news/germany-france-show-signs-o...