Although Germany and France, the two biggest economies in the eurozone, recorded GDP sequential rates of 0.3% and 0% respectively in the second quarter, overall eurozone GDP contracted by 0.2% on the previous quarter. In line with our expectations, the French economy stagnated for the third quarter in a row. In contrast toGermany, private consumption and net exports were a drag on growth, while business investment was up. In 2012 as a whole French GDP growth is likely to be around half that in Germany, namely in the region of ½ percent. Encouraging is the return of the Dutch economy to growth, with two slightly positive quarterly rates in a row, and that the performance in Austria, with GDP up 1% on a year earlier, is similarly robust as in Germany.
At the other end, Italy, Spain and Portugal saw GDP fall by 0.7%, 0.4% and 1.2% respectively on the previous quarter. While the performance in Spain was in line with our expectations and we continue to see a GDP decline of around 1% in 2012 as a whole, Italy’s significantly poorer performance by comparison came as a surprise, prompting us to lower our GDP forecast to -1.8%. For Portugal we are still penciling in a decline in the region of 2 ½%. In the eurozone as a whole the economic risks have increased. This year the economy will at best stagnate, the recovery in the second half of the year is likely to be flat, providing only a modest basis for the growth outlook 2013.