Some of the growth in the quarter can be attributed to statistical “payback” following weather-related disruptions in the first quarter of the year. This was most notable in Germany which posted 0.7% quarterly growth in Q2 following a flat first quarter of the year which had surprised on the downside. We don’t get any breakdown of the GDP numbers with these early “flash” estimates although the statistical office (FSO) suggested the growth in the quarter was mainly due to domestic demand and that investment demand was particularly strong.
Most of the upside surprise in France came from a sharp improvement in private consumption while public consumption also grew over the quarter. On the downside investment declined over the quarter, albeit at a slower pace than in the previous quarter. As we’ve said about all the major developed economies a return to robust and sustainable growth needs investment, so until we see investment growing, an element of uncertainty remains about the future growth trajectory. We are therefore still cautious about the outlook for France.
Other results saw the pace of recession moderate in Italy (-0.2% q/q in Q2), Spain (-0.1%) and the Netherlands (-0.2%). But perhaps the biggest surprise of the day came in Portugal which posted 1.1% growth in the quarter. In Greece the pace of recession moderated. We only get annual data for Greece which showed a contraction of -4.6% in the year to June, an improvement (if that’s the right word?) on the -5.6% in the year to March.
Looking ahead we take this result as a confirmation of stabilisation in the Euro zone rather than anything more robust. It appears weather disruptions have added some volatility into the growth numbers over the first half of the year. Also we know fiscal austerity and private sector deleveraging still has further to run. At the same time, however, the PMI data has improved (the composite index stood at 50.5 in July) and confidence levels are improving as financial conditions have stabilised. All things considered I have +0.1% quarterly growth pencilled in for each of the September and December quarters.