LONDON – The 19-country eurozone’s economy grew faster than previously estimated over the first half of the year, a further indication that the region managed to withstand the escalating crisis in Greece.
In rare revisions to its back data, the European Union’s statistics agency on Tuesday increased both the first and second quarter growth rates by 0.1 percentage points to 0.5 per cent and 0.4 per cent respectively. The quarterly expansion in the first three months of this year is now the highest rate since early 2011.
The revisions from Eurostat provide further evidence that damage caused by the uncertainty over Greece was more than offset by benefits from a weaker euro and cheaper oil. The former tends to boost exports while the latter can increase economic activity if consumers who pay less to fill up their car spend the savings elsewhere.
“The broadening in growth from earlier in the recovery to include most of the eurozone’s member states is an encouraging sign,” said Bill Adams, senior international economist at PNC Financial Services.
Though encouraging, the figures still show the eurozone lagging the U.S., which grew at a quarterly rate of 0.9 per cent in the second quarter.
Overall, the figures confirm certain trends within the eurozone.
France, Europe’s second-largest economy, disappointed by flat-lining during the second quarter while Spain’s recovery gained further moment with strong growth of 1 per cent. Italy grew by 0.3 per cent, a welcome uptick for an economy that’s treaded water for years. And Germany, the eurozone’s powerhouse economy, grew by a solid 0.4 per cent.
There was also higher growth in Finland and even in Greece, which saw its economy grow by a healthy 0.9 per cent even though the cash-strapped country appeared headed for a messy exit from the euro, with uncertain consequences for the region. Analysts think the uncertainty afflicting the country may have prompted some consumers to spend in anticipation of cash withdrawal limits — something that the then radical left-led government imposed at the end of the second quarter.
The figures also confirmed that Greece, which is worth only around 2 per cent of eurozone GDP, didn’t fall into recession in the first quarter as previously thought as it eked out modest growth of 0.1 per cent.
Following the revisions, the statistics agency said the eurozone economy was 1.5 per cent bigger in the second quarter than it had been the year before. That represents a four-year high.
Though the revisions are good news for an economy that’s failed to gain much momentum since it emerged from its longest-ever recession two years ago and has grappled with a debt crisis for even longer, analysts said they do little to alter the expectation that the European Central Bank will need to do more to shore up the recovery.
“The figures are obviously backward-looking and don’t incorporate the latest deterioration in the outlook caused by external developments like the concerns over China, nor the recent rise in the euro,” said Jonathan Loynes, chief European economist at Capital Economics. Loynes thinks the ECB will pull the trigger on further stimulus by December.
Last week, ECB President Mario Draghi gave a big hint that the central bank is ready to give the eurozone economy a bigger dose of stimulus if the turmoil in China starts to weigh on growth and inflation. The ECB is particularly worried that consumer prices may start falling again due to lower oil prices.
The ECB’s 1.1 trillion-euro ($1.2 trillion) stimulus is intended to help get consumer price inflation back toward the ECB’s target of just below 2 per cent. In the year to August, inflation stood at just 0.2 per cent.
This story has been corrected to show that the previous high in the quarterly growth rate was in the first quarter of 2011, not the third quarter of 2010, as the statistics agency first reported.