Eurozone economy expands 2% in the second quarter

August 02, 2021: -The eurozone economy expanded in the second quarter of this year as various governments tiptoed around their economic reopening, preliminary data has shown.

On Friday, according to preliminary estimates by Eurostat, the 19-member economy grew by 2% from three months through to the end of June. The region contracted 0.3% in the first quarter and 0.6% in the last quarter of the previous year, two consecutive quarters of economic contraction are defined as a technical recession.

Compared with the same quarter before a year, the latest GDP reading represented an increase of 13.7%.

Portugal, Austria, and Latvia registered the highest quarterly growth rates.

Although, the economic outlook is delicate. The highly transmissible Covid-19 delta variant has led to increased infections in the last weeks for several countries. Though the number of hospitalizations has not been severely impacted and the number of vaccinations against the virus has gathered speed, it is thought some consumers will hold back from having new liberties as Covid-19 cases keep on increasing.

“Looking ahead, we maintain our view, as does the consensus, that the third quarter will be much better, as momentum carries over uninterrupted, but downside risks loom,” Claus Vistesen, chief Europe economist at Pantheon Macro, said this week.

He also said that “new virus cases are now shooting higher, driven by the Delta variant and evidence from the U.K. suggested that it is holding back economic activity.”

Stateside, the recent gross domestic product numbers came in at an annualized 6.5% for the second quarter, well below market expectations but much higher than the last three-month period.

The European Central Bank expects GDP in the eurozone to reach 4.6% by the year-end, followed by 4.7% next year.

Eurostat said that annual inflation is projected to hit 2.2% in the eurozone this month in a separate data release. This would be up from 1.9% in June.

Market players and central bankers are very much focused on this set of data as they try to determine whether a recent increase in consumer prices is transitory or not. A sustained period of higher inflation would trigger reductions in monetary stimulus.

The ECB’s target is to support an inflation rate of 2%. The Frankfurt-based institution has said that inflation is expected to surge in the future months but will calm down next year.