Eurozone Q215 GDP – picking up the pieces

The timing of the GDP data released 10-days ago, given the peak of the summer months where traders, investors and analysts alike lighten up on their workload and take time off, did nothing to quash fears that the economic recovery in the Eurozone, is beginning to slowly lose steam, albeit we remain upbeat that the fact that there is growth cannot be overseen.

Growth for the second quarter of 2015 in the single currency region came in lower than what was previously forecast, 0.3% q-o-q vs 0.4% forecasted growth, as 4 out of the 5 largest economies failed to meet expectations. France and Netherlands were the clear underperformers whilst Germany and Italy fell shy of forecasts. On the other hand, Spain came out as the clear winner, indicating growth of an encouraging 1.0% q-o-q, more than double the growth witnessed in the other big 4 economies. Having said this, we must highlight the fact that Spain is benefiting from the so-called re-base effect and is continuing to gain lost ground suffered over recent years.

The Dutch economy was negatively impacted by a sharp decline in the production of gas, with data indicating that the extraction of oil and gas decline by a third, mainly on the back of restrictions on output following some minor earthquakes negatively impacting the region in which Dutch energy companies operate. This resulted in the economy growing by a mere 0.1% q-o-q, despite some positive developments witnessed in other sectors.

Meanwhile, the French economy grew by a disappointing 0.3% q-o-q but export was somewhat robust at 1.7% q-o-q in line with previous quarters, indicating that the growth recovery story in France remains intact.

Italy and Germany’s economies performed pretty much in line with consensus expectation, falling short only by a small amount, giving encouraging signs that in Q3 we could witness some surprises to the upside. Growth in Germany was impacted by weaker industrial production for the month of June despite a 5% increase in German new orders. This coupled with positive confidence indicators within the services sector point towards positive Q3 growth. Similarly, Italy was negatively impacted by lower industrial production in June, but the impact of Milan Expo are expected to be reaped in the third quarter of the year, auguring well for the upcoming GDP data prints.

Spain on the other hand was Eurozone’s star performer, growing at a rate of 1.0%, the fastest pace since the 2008 market crisis. Improved consumer confidence, household spending and support from exports coupled with improving PMIs and leading indicators point towards even more encouraging growth from Spain in the months to come.

All in all, we are not discouraged by GDP coming in below expectations, as several key data points seem to point towards supportive growth in the months ahead. What we would be wary about are the implications that the slowdown in China could have on the global growth recovery story as well as a premature increase in rates in the US, which will ultimately keep a lid on growth picking up steam in the Eurozone.