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FX.co ★ Eurozone Economy Bounces Back From Pandemic Driven Downturn

Eurozone Economy Bounces Back From Pandemic Driven Downturn

The euro area economy recovered in the second quarter, after two straight quarters of contraction, driven by the lifting of lockdowns and the implementation of vaccination programmes, the preliminary flash estimate from Eurostat showed on Friday.

Inflation exceeded the European Central Bank's target in July on higher energy prices, another report from the statistical office showed.

The unemployment rate in the currency bloc dropped to the lowest since May 2020 as firms hired more staff amid economic recovery.

Gross domestic product expanded 2 percent sequentially, reversing the 0.3 percent drop posted in the preceding period. The growth rate was bigger than the expected 1.5 percent.

On a yearly basis, GDP rebounded 13.7 percent after shrinking 1.3 percent in the first quarter. GDP was forecast to grow 13.2 percent.

As these preliminary GDP flash estimates are based incomplete data , they are subject to further revisions, Eurostat said.

Looking ahead, Andrew Kenningham, an economist at Capital Economics, said there would be another strong number for Eurozone GDP in the third quarter, perhaps a little over 2 percent sequentially, which would bring the economy close to, but below, its pre-pandemic level.

While the Delta variant and supply chain problems are significant risks to the outlook, the rebound is set to maintain this brisk pace in the third quarter, Bert Colijn, an ING economist noted.

Among big-four economies, the German economy grew 1.5 percent from the first quarter, when it was down 2.1 percent. The growth was fueled by higher household and government consumption.

Underpinned by household spending and investment, French GDP rebounded 0.9 percent in the second quarter, after being flat in the first quarter.

Spain GDP grew 2.8 percent sequentially after contracting 0.4 percent a quarter ago, as the strong rebound in household spending offset the fall in investment.

Italy's GDP growth improved to 2.7 percent in the second quarter from 0.2 percent in the first quarter.

The EU27 economy expanded 1.9 percent on quarter taking the annual growth to 13.2 percent in the second quarter.

Flash data showed that Eurozone inflation rose to the highest in more than two years in July.

Inflation came in at 2.2 percent in July, up from 1.9 percent in June. The rate was above the expected 2 percent and also the ECB target.

This was the highest inflation since October 2018, when inflation was 2.3 percent.

Meanwhile, core inflation that excludes energy, food, alcohol and tobacco, slowed more-than-expected to 0.7 percent in July from 0.9 percent in June. The expected rate was 0.8 percent.

The euro area unemployment rate dropped for a second month in a row in June to hit the lowest since May 2020.

The jobless rate dropped to 7.7 percent from 8.0 percent in May. The youth unemployment rate, which applies to those under 25, fell to 17.3 percent from 17.9 percent in the previous month.

The jobless rate is unlikely to rise even as governments scale back their job support scheme, Kenningham, an economist at Capital Economics, said.

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