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Eurozone recovery grinds to halt amid Ukraine fear

KDWN

FRANKFURT, Germany (AP) — Well, that didn’t last long.

After four quarters of meager growth, the fragile economic recovery in the 18-country eurozone creaked to a halt in the second quarter.

Growth was zero. After only 0.2 percent in the first quarter.

Now who will get out and push? The European Central Bank, with a further monetary stimulus? Or governments in France and Italy, which have dragged their heels in making their economies more business-friendly?

Either or both could help. Especially if the Ukraine crisis mushrooms with a Russian invasion that would scare off business investment even more – and extend one bad quarter into an outright recession.

Few economists think the eurozone will slip back into its third recession in six years. Most expect only a slow recovery as Europe continues to work down its debts and that’s not ideal for a global economy that’s a long way short of firing on all cylinders.

In short, the eurozone remains a potential drag on the rest of the world.

“I don’t think today’s numbers make that picture any worse,” said Tom Rogers, senior economic adviser to the EY eurozone forecast. “It’s still going to be a slow recovery for the eurozone and it will be a slow recovery for eurozone markets for imports from the rest of the world.”

Here’s what happened:

SILENT SPRING: Germany let everyone down by shrinking 0.2 percent in the second quarter from the previous three-month period. Economists aren’t too concerned because they think a lot of the growth simply migrated to the first quarter because of a very warm winter that let construction start early. Europe’s biggest economy remains the continent’s standout performer. It has low unemployment and took steps to cut business taxes and costs years ago.

RUMORS OF WAR: The “Putin effect,” as economists at Berenberg Bank call it, comes from fears that Russian President Vladimir Putin may back an invasion of eastern Ukraine where pro-Russian separatists are fighting Ukrainian government forces. That worry is making businesses hesitant to invest. Though eurozone exports to Russia are only 0.8 percent of the bloc’s annual gross domestic product, the crisis has hurt business confidence – executives are wary of risking cash for expansion, just as they were getting their mojo back after the debt crisis of the past few years. Business surveys like Germany’s Ifo show the fear is taking hold.

Ukraine fears have only grown since the end of the quarter on June 30. Since then, the shooting down of Malaysia Airlines Flight 17 over Ukraine on July 17 – by a missile from territory held by pro-Russian separatists, according to the U.S. and Ukraine – has increased tensions dramatically.

THE USUAL SUSPECTS: Stagnating France and Italy are balking at politically tough reforms that would lower costs for businesses. France’s economy was flat in the second quarter. Italy’s shrank 0.2 percent, for the 11th drop in the past 12 quarters. So-called structural reforms include easing rigid rules on hiring and firing, and especially in Italy’s case, reducing choking bureaucracy and corruption. France has tried cutting payroll taxes to help business but further steps have stalled. Italy’s Prime Minister Matteo Renzi came into office six months ago promising fast change, but now says reforms will be rolled out over the next 1,000 days.

WHO’S PERIPHERAL NOW? This time it was Europe’s core economies that were the problem, even as smaller, so-called peripheral economies are recovering from the debt crisis that ravaged the currency unions. Spain and Portugal both showed robust growth of 0.6 percent.

And Greece, the country at the forefront of the debt crisis which has seen its economy shrink by around a quarter over the past few years, is on the mend. Its economy was only 0.2 percent smaller than it was the year before, the smallest rate of decline in nearly six years. Greece does not report quarterly figures.

THINK GLOBALLY: Since the eurozone and its population of around 330 million accounts for 17 percent of world GDP in dollar terms, its stuttering performance is a weight on the global economy. Europe lags the U.S., which grew 1.0 percent from the quarter before, according to the EU’s statistics office Eurostat. It’s safe to say this European performance isn’t what U.S. automakers like General Motors and Ford wanted to see. However, the eurozone did better in the quarter than Japan, which shrank by a hefty quarterly rate of 1.7 percent after a new sales tax turned off consumers.

QE, TOO? The European Central Bank will likely hear more calls for it to roll out more monetary stimulus for the flagging economy. It could do that by buying large amounts of financial assets such as government bonds, using newly created money – something only a central bank can do. It’s called quantitative easing, or QE. In theory, it could drive down longer term interest rates even more and pump new money into the financial system in hopes of seeing it appear as loans to companies and consumers. But it’s tricky in a currency zone with 18 different members.

The ECB is watching another worrisome indicator. Inflation is too low at 0.4 percent and that is raising fears of a downward price spiral that kills growth by making consumers delay spending in hopes of cheaper bargains down the line.

The ECB has already cut its key interest rate to a record low of 0.15 percent and is offering cheap loans to banks. It says it’s waiting to see how those steps work, and could do QE only if things take a serious turn for the worse.

ECB head Mario Draghi has pushed back on governments, saying they’re the ones who have to make the tough changes.

Italy’s troubles come from too much red tape, he said at his last news conference: “That has nothing to do with monetary policy.”

Eurozone recovery grinds to halt amid Ukraine fear

KDWN

FRANKFURT, Germany (AP) — The shaky economic recovery in the 18-country eurozone ground to a halt in the second quarter, as the continent’s central pillars – Germany and France – were held back by weaker investment by business and by fears over the crisis in Ukraine.

The German economy, the biggest among the countries that use the euro, shrank by a quarterly rate of 0.2 percent while no. 2 France showed zero growth for the second straight quarter. Italy, the No. 3 economy, shrank.

The outcome reported by Eurostat, the European Union’s statistics office Thursday, was slightly lower than the 0.1 percent growth expected by market analysts. Some analysts had already scrapped more optimistic projections in the days ahead of the announcement amid a run of disappointing economic news.

The figures bring an end to the eurozone’s paltry recovery from its longest-ever recession. Growth, which has been patchy across the region and dependent on Germany, has lasted just four quarters.

The eurozone isn’t the only economy that’s showing signs of losing momentum. On Wednesday, Japan reported a big second quarter decline though that was largely due to the impact of a new sales tax, while the U.S. has exhibited some weakness of late despite ongoing jobs growth.

While a mild German winter that shifted construction from the second quarter to the first was a key factor behind the underperformance, economists say fears the Ukraine crisis may escalate are making companies in Europe hesitate to invest and consumers to postpone spending.

“Not only will an escalating crisis hit risk appetite, but sanctions are also likely to have some impact on Europe’s economies in coming months,” said Chris Williamson, economist at Markit.

Ukraine fears have only grown since the end of the quarter on June 30. Since then, the shooting down of Malaysia Airlines Flight 17 over Ukraine on July 17 – by a missile from territory held by pro-Russian separatists, according to the U.S. and Ukraine – has increased tensions dramatically and prompted tit-for-tat sanctions between Russia and the European Union.

But beyond temporary factors, a failure to enact cuts in bureaucracy, taxes and rigid labor rules – so-called structural reforms – hangs over the eurozone as it tries to heal from its crisis over too much government debt.

That’s particularly true for Italy, which shrank 0.2 percent in the quarter and earned a scolding from European Central Bank head Mario Draghi, a former top Italian finance official, for not moving forward on reforms.

This time it was Europe’s core economies that were the problem, even as smaller, so-called peripheral economies are recovering from the debt crisis that ravaged the currency union for much of the past five years. Spain and Portugal both showed robust growth of 0.6 percent.

And Greece, the country at the forefront of the debt crisis which has seen its economy shrink by around a quarter over the past few years, is on the mend. Its economy was only 0.2 percent smaller than it was the year before, the smallest rate of decline in nearly six years. Greece does not report quarterly figures.

Economists think Germany’s slowdown may be temporary but France’s suggests deeper problems. The German state statistical office said imports, supported by steady demand from domestic consumers, rose more than exports, weighing on growth. Spending on business investment also fell, particularly in new buildings. A mild winter may have meant construction activity moved up to the first quarter, suggesting the second quarter figure may understate growth.

Meanwhile, France’s economy has slowly stagnated as pro-business reforms have lagged. A cut in payroll taxes aimed at helping lower labor costs for businesses and making France more competitive so far has had little effect.

“While the Q2 weakness should remain temporary for Germany, France remains mired in economic stagnation due to a lack of reform,” economist Christian Schulz at Berenberg Bank said. “Weak investment highlights France’s deep-running problems.”

The figures will likely raise pressure on the European Central Bank to enact more measures to support the recovery. The ECB has already cut its main interest rate to a record low of 0.15 percent in an effort to reduce borrowing costs even further for businesses and consumers. And it is offering long-term cheap loans to banks, in hopes that will encourage them to lend more.

The ECB has held off from large-scale purchases of financial assets, or so-called quantitative easing, a step which adds newly printed money to the financial system.

Eurozone recovery grinds to halt amid Ukraine fear

KDWN

FRANKFURT, Germany (AP) — The shaky economic recovery in the 18-country eurozone ground to a halt in the second quarter, as the continent’s central pillars – Germany and France – were held back by weaker investment by business and by fears over the crisis in Ukraine.

The German economy, the biggest among the countries that use the euro, shrank by a quarterly rate of 0.2 percent while no. 2 France showed zero growth for the second straight quarter. Italy, the No. 3 economy, shrank.

The outcome reported by Eurostat, the European Union’s statistics office Thursday, was slightly lower than the 0.1 percent growth expected by market analysts. Some analysts had already scrapped more optimistic projections in the days ahead of the announcement amid a run of disappointing economic news.

The figures bring an end to the eurozone’s paltry recovery from its longest-ever recession. Growth, which has been patchy across the region and dependent on Germany, has lasted just four quarters.

The eurozone isn’t the only economy that’s showing signs of losing momentum. On Wednesday, Japan reported a big second quarter decline though that was largely due to the impact of a new sales tax, while the U.S. has exhibited some weakness of late despite ongoing jobs growth.

While a mild German winter that shifted construction from the second quarter to the first was a key factor behind the underperformance, economists say fears the Ukraine crisis may escalate are making companies in Europe hesitate to invest and consumers to postpone spending.

“Not only will an escalating crisis hit risk appetite, but sanctions are also likely to have some impact on Europe’s economies in coming months,” said Chris Williamson, economist at Markit.

Ukraine fears have only grown since the end of the quarter on June 30. Since then, the shooting down of Malaysia Airlines Flight 17 over Ukraine on July 17 – by a missile from territory held by pro-Russian separatists, according to the U.S. and Ukraine – has increased tensions dramatically and prompted tit-for-tat sanctions between Russia and the European Union.

But beyond temporary factors, a failure to enact cuts in bureaucracy, taxes and rigid labor rules – so-called structural reforms – hangs over the eurozone as it tries to heal from its crisis over too much government debt.

That’s particularly true for Italy, which shrank 0.2 percent in the quarter and earned a scolding from European Central Bank head Mario Draghi, a former top Italian finance official, for not moving forward on reforms.

This time it was Europe’s core economies that were the problem, even as smaller, so-called peripheral economies are recovering from the debt crisis that ravaged the currency union for much of the past five years. Spain and Portugal both showed robust growth of 0.6 percent.

And Greece, the country at the forefront of the debt crisis which has seen its economy shrink by around a quarter over the past few years, is on the mend. Its economy was only 0.2 percent smaller than it was the year before, the smallest rate of decline in nearly six years. Greece does not report quarterly figures.

Economists think Germany’s slowdown may be temporary but France’s suggests deeper problems. The German state statistical office said imports, supported by steady demand from domestic consumers, rose more than exports, weighing on growth. Spending on business investment also fell, particularly in new buildings. A mild winter may have meant construction activity moved up to the first quarter, suggesting the second quarter figure may understate growth.

Meanwhile, France’s economy has slowly stagnated as pro-business reforms have lagged. A cut in payroll taxes aimed at helping lower labor costs for businesses and making France more competitive so far has had little effect.

“While the Q2 weakness should remain temporary for Germany, France remains mired in economic stagnation due to a lack of reform,” economist Christian Schulz at Berenberg Bank said. “Weak investment highlights France’s deep-running problems.”

The figures will likely raise pressure on the European Central Bank to enact more measures to support the recovery. The ECB has already cut its main interest rate to a record low of 0.15 percent in an effort to reduce borrowing costs even further for businesses and consumers. And it is offering long-term cheap loans to banks, in hopes that will encourage them to lend more.

The ECB has held off from large-scale purchases of financial assets, or so-called quantitative easing, a step which adds newly printed money to the financial system.

Eurozone recovery grinds to halt amid Ukraine fear

KDWN

FRANKFURT, Germany (AP) — The shaky economic recovery in the 18-country eurozone ground to a halt in the second quarter amid fears over the crisis in Ukraine and softer trade and investment.

The main reasons behind the flat outcome was a 0.2 percent quarterly decline in Germany, Europe’s biggest economy, and a second straight quarter of zero growth in France, the No. 2 economy.

The outcome reported by Eurostat, the European Union’s statistics office Thursday, was slightly lower than the 0.1 percent growth expectation in the markets.

Economists say fears the Ukraine crisis may escalate are making companies hesitate to invest and consumers to postpone spending. A lack of economic reforms in France has also played a role. So did a mild German winter that shifted construction from the second quarter to the first.

The German state statistical office said that imports, supported by steady demand from domestic consumers, rose more than exports did, lowering overall output figures. Spending on business investment also fell, particularly in new buildings. A mild winter may have moved construction activity up to the first quarter, meaning the poor second quarter figure may understate growth.

Surveys of business confidence in Germany are also suggesting that fears about the Ukraine crisis have made companies more cautious about their plans to invest in expanding their businesses. Ukraine fears have only grown since the end of the quarter on June 30. Since then, the shooting down of Malaysia Airlines Flight 17 over Ukraine on July 17 has ratcheted up tensions dramatically and prompted tit-for-tat sanctions between Russia and the European Union.

Meanwhile, France’s economy has slowly stagnated as pro-business reforms have lagged.

“While the Q2 weakness should remain temporary for Germany, France remains mired in economic stagnation due to a lack of reform,” economist Christian Schulz at Berenberg Bank said. “Weak investment highlights France’s deep-running problems.”

The figures will likely raise pressure on the European Central Bank to enact more measures to support the recovery.

Eurozone recovery grinds to halt amid Ukraine fear

KDWN

FRANKFURT, Germany (AP) — Europe’s shaky economic recovery ground to a halt in the second quarter amid fears over the crisis in Ukraine and softer trade and investment.

The main reasons behind the outcome, as reported by the European Union’s statistics office Thursday, was a 0.2 percent quarterly decline in Germany, Europe’s biggest economy, and a second straight quarter of flat growth in France, the No. 2 economy.

Economists say fears the Ukraine crisis may escalate are making companies hesitate to invest and consumers to postpone spending. A lack of economic reforms in France has also played a role. So did a mild German winter that shifted construction from the second quarter to the first.

The figures will likely raise pressure on the European Central Bank to enact more measures to support the recovery.