GDP in the euro area: five important factors

The report on gross domestic product in the euro area in the second quarter will be dark and sinister - reading is not for the faint of heart. According to the forecasts, GDP Monetary Union increased by 0.1% compared to the previous quarter, or 0.4% a year. It is twice less than in the first quarter and far below the rate of growth can significantly reduce unemployment or reduce the debt burden in Europe. So, the five factors of today's GDP report.

Germany does not justify the high trust her ...

GDP in Germany is likely fell by 0.1% compared with the previous quarter. Thus, the Eurozone's largest economy drags down the entire currency union - the first time since 2009.

By itself, this fact is not so terrible. In the first quarter, German GDP grew by 3.3% year on year (and by 0.8% QoQ), which was mainly due to higher activity in the construction sector and the warm weather - now it's time to back off artificially inflated figures. However, recent studies suggest that the Ukrainian conflict is likely to destroy the hope of recovery in the second half. A eurozone will not be able to move up a gear without a strong Germany.

... and ailing France does not help her

The second largest Eurozone economy also will not be able to rectify the situation. It is expected that French GDP grew in the second quarter and 0.1%. But in contrast to Germany it is nothing to justify such a low rate - no statistical errors, which could be attributed to it. France toils sluggish growth and gloomy moods for several quarters. It is unlikely that there is something to change in the near future, the government hopes to stimulate growth in the EU budget rules will not come true.

In Europe, many more troubled countries

Fragile eurozone periphery moves in the opposite direction. Spain has already reported about the growth in the second quarter by 0.6%, while Italy has slipped into recession. Portugal's success will help to assess how things are going in the country, implement structural reforms, as compared with those who did not.

Look for weaknesses

Thus, according to analysts' data J.P. Morgan, when GDP will be released at the level of forecasts, economic growth in the euro area will lag behind the pre-crisis peak in 2008 at 2.4%. States and Britain have managed to recover the loss in output suffered during the Great Recession. If the Eurozone will continue to move forward the same snail's pace, it would need at least another three years to return to 2008 levels. This means that the sluggish economy will restrain the growth of employment and inflation.

Implications for monetary policy of the ECB

ECB forecast for growth of 1% seems to be something out of science fiction. If it will be revised downward, perhaps, the bank will have to resort to more drastic measures - such as quantitative easing - to revive growth and bring the annual inflation rate (currently 0.4%) closer to the target value of 2%.