Market Overview

Capital IQ Breaks Down The Eurozone Recovery

The eurozone recovery has been struggling. GDP has remained flat overall after the second quarter of 2014 disappointed. This was before a new round of sanctions were laid upon Russia, which is the largest trading partner of the eurozone.

  • Germany GDP second quarter growth missed estimates
  • France remains stagnant as economy fails to to grow for 2nd consecutive quarter
  • Italy slid into its third recession since 2008
  • Spain’s economy shined bright as its GDP expanded 0.6 percent in the second quarter

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Germany has struggled after construction dropped off alongside the foreign trade struggles thanks to Russian sanctions. Business sentiment is also weak, as noted by Capital IQ.

"The business climate index fell to 106.3 from 108 in July marking the longest period of successive declines since 2012."

France’s inability to generate growth over the past quarters has caused the country to miss deficit targets and will most likely miss the eurozone budget deficit ceiling of three percent of GDP for the foreseeable future.

"With the economy struggling and his popularity dwindling, French President Francois Hollande dissolved the government following fierce infighting," said Capital IQ.

Italy continues to be a problematic mess. Its debt-to-GDP ratio is around 130 percent. The eurozone limit on debt-to-GDP is 60 percent. It may come as little surprise the country wants to include illicit trade in its GDP calculation. The government in Italy still struggles to contain tax evasion and corruption as opposition to the current regime swells further.

Spain’s turnaround, lauded by Chancellor Angela Merkel, maintains its strength after second quarter GDP climbed the most in a quarter since 2007. Capital IQ warned, "The increase was from a very low base following severe recessions over the past few years, and the wider context of faltering economies in most of the major European nations is likely to drag on future performance."

The eurozone is struggling, which is leading many participants to anticipate more action from the ECB just as the U.S. Fed winds down its quantitative easing. All eyes will be on the Fed for leads into what to expect from Europe, as the world's two largest central banks prepare to material action.

Posted-In: Eurozone Economics Markets

 

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