Is Germany Guaranteeing a Large Slowdown in the Euro Zone Economy?
The euro zone‘s economy grew by just 0.2% in the second quarter, falling short of expectations as well as first quarter growth of 0.8%.
Growth in the 17-nation single currency bloc’s largest economy, Germany (NYSE:EWG), slowed to 0.1% in seasonally adjusted terms, down from 1.3% in the first quarter. France (NYSE:EWQ), the euro zone’s second largest economy, reported last week that it experienced no growth in the second quarter.
In Spain (NYSE:EWP), one of the largest economies facing a debt crisis, the economy only grew 0.2%, while growth was flat in its neighboring Portugal, an improvement over months spent contracting effected by a rise in exports. Only Austria (NYSE:EWO) showed significant growth, expanding by 1.0%.
Today’s economic data makes further interest rate hikes less likely from the European Central Bank, which controversially began buying Italian (NYSE:EWI) and Spanish bonds after their yields rose to alarming levels. “The situation in the international economy has again increased concerns in recent weeks. There is more uncertainty about economic growth than before,” said ECB Governing Council member Erkki Liikanen.
Economists forecast that international trade will continue to slow in the coming months, and most indicators show a downward trend that could lead to another recession. European powerhouse Germany (NYSE:EWG) grew at its slowest pace since the first quarter of 2009, and fell short of expectations of a 0.5% expansion. The euro fell today off a three-week high against the dollar after the data was released, and European shares fell 1.5%.
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German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet today in Paris to address how to better coordinate the euro zone’s economies. One issue reportedly not on the table is a common euro zone bond, despite growing support for the idea in some of the region’s smaller, weaker economies. A common euro zone bond wouldn’t go over well in Germany (NYSE:EWG), a nation that has become used to a strong economy and fared best in the region coming out of the 2008 financial crisis, as it would tie its fate to that of weaker economies.