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Eurozone growth slows as trade tensions persist

BRUSSELS: Economic growth in the eurozone slowed in the second quarter, official data has shown, feeding concerns that global trade tensions fuelled by Washington may be hurting Europe’s economy.

Major economic institutions — including the European Central Bank and International Monetary Fund — have warned that growth in the eurozone risks taking a hit from the rising protectionism that stemmed from the “America First” policies of US President Donald Trump.

The fresh data released Tuesday confirmed the fears with growth in the 19-country single currency bloc hitting 0.3 percent in the April to June period, below the 0.4 percent in the previous quarter, the EU’s Eurostat statistics agency said.

On a year-to-year basis, economic growth in the eurozone reached 2.1 percent, which was far lower than the 2.5 percent in the previous quarter and also weaker than forecasts by analysts.

“Trade uncertainty seems to have already had a significant effect on the Eurozone economy in the second quarter,” said Bert Colijn, Senior Economist at ING bank.

“While the impact on real export growth has likely been small over the second quarter, the confidence factor has been more important,” he added.

European Central Bank chief Mario Draghi on Thursday already warned that “the threat of protectionism” remained a “prominent” risk to eurozone growth and warned that this year may not see a repeat of the bumper 2017.

IMF Chief Economist Maurice Obstfeld warned this month that “the risk that current trade tensions escalate further … is the greatest near-term threat to global growth”.

ECB caution

The data landed days after the European Union and US declared a trade war truce following White House talks, but analysts said the accord was fragile and that the spat could still weigh on growth.

Still, “the fact that the immediate risk of escalating trade tensions has diminished now should support growth throughout the second half of the year,” said Dirk Schumacher of Natixis bank.

The uncertainty over trade helped ECB governors last week decide to leave interest rates at historic lows even though they stuck to plans to halve “quantitative easing” or mass bond-buying from October before ending the stimulus scheme at the end of the year.

This came a month after the Italian banker surprised observers by announcing the ECB will wind down its massive stimulus programme faster than anticipated, before ending altogether it in December.

“We still see growth regaining some pace as the year goes on, but for now the continued slowdown will certainly keep the ECB in cautious mode,” said Jennifer McKeown of Capital Economics.

The caution will be put to the test by the inflation data also released on Tuesday that saw the ECB’s two percent target exceeded.

Eurostat said eurozone inflation accelerated in July to 2.1 percent driven by high energy prices. This was slightly faster than forecast by analysts.

Eurostat also said unemployment in the eurozone remained flat in June, at 8.3 percent.

Joblessness in the area has been falling steadily since it fell below the symbolic threshold of 10.0 percent in September 2016.

However, it is still higher than the average rate before the financial crisis, when it stood at 7.5 percent.

Among the 19 single currency countries, the lowest unemployment rates in May was recorded in Germany at 3.4 percent, according to Eurostat.

The highest rate was that of Greece with 20.2 percent in April, the latest available figure.

Crisis-hit Spain saw its rate fall to 15.2 percent.

Read More: France, Germany close to agreement on eurozone reform

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