Eurozone in recession as Germany contracts

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It’s pretty much official now: Europe is in recession. As I predicted late last month, the Eurozone has hit stall speed with Germany now reporting a fall in GDP for the second quarter.

The German economy, Europe’s largest, contracted for the first time in almost four years in the second quarter, led by a slump in construction.

Gross domestic product fell a seasonally adjusted 0.5 percent from the first quarter, when it rose a revised 1.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a 0.8 percent decline, the median of 41 forecasts in a Bloomberg News survey showed. In the year, the economy grew 1.7 percent when adjusted for the number of working days.

Bloomberg News, 14 Aug 2008

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While the ECB itself is serious about its inflation chops, other central banks will use this information as yet another signal that they need to ease. The RBA in Australia looks most likely to ease as rates there are 7.25%. The BoE released a very dovish inflation forecast yesterday and, given the trade links to the Eurozone, it should see this as more reason to ease in early 2009.

Ironically, because of the ECB’s inflation stance, this report may end up having more impact on Sterling and the Australian Dollar than the Euro.

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But, any way you look at it, with Italy and Germany showing negative GDP numbers and Spain and Ireland mired in housing downturns, the Eurozone is looking weak.

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