By William Horobin And Todd Buell
Germany's economy contracted while France's stagnated in the second quarter, indicating the euro zone's yearlong recovery lost momentum, and likely pressuring policy makers to come up with some new ideas for boosting growth.
The euro zone's largest economy contracted 0.2% in the three months to June, Germany's federal statistics office said. Economists polled by The Wall Street Journal last week said they expected the economy to shrink 0.1% on the quarter and grow 1.4% in annual terms.
Destatis said that net trade was a drag on growth, as import growth outpaced export growth. Construction investment declined, but Destatis explained this was due to projects being pushed forward becauseof the unusually mild winter. Both private and public consumption rose compared with the first quarter, Destatis said.
Earlier, figures from France's statistics agency showed the euro zone's second-largest economy failed to record any growth for the second quarter in a row in the period April through June. Economists polled by The Wall Street Journal had expected a 0.1% GDP expansion in the second quarter from the first. Compared with the same period of 2013, gross domestic product was up just 0.1%.
Figures published previously showed Italy's economy also contracted in the second quarter, by 0.2%. The data released Thursday mean that none of the euro zone's three largest economies expanded in the three months to June, making it unlikely that the euro zone as a whole managed to generate any growth.
The weak recovery leaves the currency bloc lagging other advanced economies such as the U.S. and the U.K. The sluggishness is keeping unemployment high and inflation low, increasing pressure on the European Central Bank to lower its outlook for economic growth and take more action to bring inflation closer to its 2% target from around 0.4% currently.
In France, poor second-quarter growth threatens to upend the government's plans to bring down its deficit only a month after Paris adopted a revised budget to try and stay on track.
Mr. Hollande's government is banking on 1% growth this year to bring the deficit down to 3.8% of GDP, but economists say a huge rebound will be needed in the second half if Paris is to get anywhere near its targets. Insee already forecast in June that the economy will grow only 0.7% this year, and even that looks optimistic now as the statistics agency's outlook was based on the assumption that growth would pick up to 0.3% a quarter in the second quarter.
French officials have indicated they will revisit their forecasts once the second-quarter GDP figures are published. Prime Minister Manuel Valls has warned his ministers they will face a challenging time when they return to work after the summer break.
The GDP statistics from Insee on Thursday showed France's domestic economy was held back by weak investment offsetting a rise in consumer spending. Exports growth also slowed to zero in the second quarter and foreign trade was a drag on GDP growth.
Write to William Horobin at William.Horobin@wsj.com
(END) Dow Jones Newswires
August 14, 2014 02:23 ET (06:23 GMT)
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