Euro zone economy stagnates in second quarter

Friday 05 September 2014 14.14
Second Q2 estimate for euro zone growth confirms stagnation of economy
Second Q2 estimate for euro zone growth confirms stagnation of economy

The euro zone economy stagnated in the second quarter, official figures showed today, in line with the poor outlook which pushed the European Central Bank into radical action yesterday. 

In a second estimate for growth in the 18-country currency zone, the Eurostat statistics body confirmed zero percent growth from the previous quarter. 

It also reported a slight expansion of 0.2% for the full 28-country European Union. 

The first estimate announced in the middle of August sent shockwaves across financial markets and governments desperate for growth, and put even more pressure on the ECB to take action. 

It did so in unexpected fashion yesterday, when ECB president Mario Draghi produced the latest in a series of policy surprises, while also warning that the real solution was faster reforms by governments. 

Fears are growing that the European economy, after making it through the euro crisis and the prospect of the collapse of the single currency, may now be poised for years of stagnation or unduly low growth.

Stunted growth in the euro zone is forcing governments to cut back their estimates for growth of gross domestic product for the rest of the year, putting budget deficit targets into jeopardy, and also clouding the outlook for growth of the global economy. 

The unexpectedly low growth figure was mainly the result of a surprise 0.2% shrinkage in Germany, usually the reliable euro zone growth engine, and stagnation in an already fragile French economy. 

Feeling the pressure, the Frankfurt-based ECB cut interest rates to a record low level and pledged to buy hundreds of billions of euros of private sector bonds, thereby pumping much-needed cash into the economy. 

However, Draghi also revealed that the ECB's policy council was split, since the decisions announced were not taken unanimously. 

The ECB also slashed its forecasts for growth in the euro zone this year and next, and lowered its outlook for area-wide inflation. The ECB is now pencilling in gross domestic product growth of 0.9% in 2014 with inflation expected to be 0.6% this year - a lower rate than the 0.7% originally forecast.