Slight loss of economic momentum

Preliminary Eurostat estimates put eurozone economic growth at 0.3% (q-o-q) in the second quarter, suggesting that the economy was not quite able to maintain the pace of growth seen at the start of the year. In an environment characterized by favorable economic conditions, such as low oil prices, a weaker euro and the ECB's loose monetary policy, second-quarter growth disappointed lagging slightly behind expectations.

Good news came mainly from the former EMU crisis countries: Spain (1.0%) and Portugal (0.4%) continued their economic catch-up process in the second quarter, while Greece surprised with GDP growth of 0.8% and Cyprus (0.5%) officially bid farewell to recession. Economic developments in the core countries, on the other hand, proved largely disappointing.

Although the German economy continued to expand, at 0.4% (q-o-q), GDP growth came in weaker than expected. The economic expansion was driven by exports and private as well as public consumption. Meanwhile inventory changes and investment acted as a drag on the growth reading. Despite positive signs for the second half of the year, such as the strong rise in orders in Q2 (+3% as against the previous quarter), the German economy will likely struggle to achieve GDP growth of 2% as set out in our forecast.

The French economy stagnated in the second quarter after a strong performance in the first three months of the year (0.7% q-o-q). While foreign trade made a positive contribution to growth, unlike in the first quarter of 2015 the positive impetus provided by domestic demand proved very small. Fixed capital investment and inventory changes put a damper on economic growth.

In Italy economic growth came in only slightly stronger than in France. With a meager GDP growth rate of 0.2% in a quarter-on-quarter comparison, the Italian economic recovery continued in the second quarter, although the pace of growth slowed slightly compared to the previous quarter (0.3% q-o-q).

In addition to the heavyweights, growth readings for some of the eurozone's smaller core economies, such as Austria (0.1%), the Netherlands (0.1%) and Finland (-0.4%), came in on the weaker side.

We are sticking to our eurozone GDP forecast of 1.5% in 2015. However, the core EMU countries will have to expand at a higher rate again with the economic catch-up process in the former crisis countries unlikely to prove sufficient to guarantee a continuation of, let alone an acceleration in, the eurozone's economic recovery.

Katharina Utermöhl

Allianz SE
Phone +49.69.24431-3790

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