Economic Snapshot: The Euro Zone

The euro and the Euro Zone haven’t been making a lot of major headlines lately, but if you’re interested on how the Euro Zone as a whole is faring lately, then this economic snapshot may be just the thing for you.

Note: As with all Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. However, the bullet points provided highlight the underlying details and trends that give the numbers their proper context.

Growth

  • The second estimate for the Euro Zone’s Q2 GDP growth rate remained remained unchanged at 0.3% quarter-on-quarter and 1.6% year-on-year.
  • This is only the second or “flash” estimate, so no breakdown of GDP components yet.
  • As of Q1 2016, Germany (29.21%), France (20.96%), Italy (15.67%), and Spain (10.52%) combined account for more than 75% of the Euro Zone’s GDP.
  • No clear trend for quarter-on-quarter growth, but GDP has been growing for 13 consecutive quarters now.
  • The 0.3% expansion in Q2 is weaker when compared to Q1’s 0.6% growth rate, though.
  • The slowdown was apparently due to weaker growth from Germany, as well as stagnant economic growth in both Italy and France.
  • On an annual basis, the 1.6% growth rate in Q2 is slower when compared to the 1.7% increase in Q1.
  • The 1.7% rate of expansion for both Q1 2016 and Q4 2014 are the highest in 18 quarters.
  • The slower pace of annual growth in Q2 ended seven consecutive quarters of steady or faster growth.
  • The weaker annual growth was apparently due to weaker growth in Germany, Spain, and Italy.
  • Greece grew by 0.3% quarter-on-quarter (-0.1% back in Q1), but continues to be the only drag on an annual basis (-0.7% vs. -0.8% previous).

Employment

  • The jobless rate in the Euro Zone held steady at 10.1% during the June period.
  • This is lowest reading since July 2011, which is great.
  • Trend-wise, the jobless rate has been sliding lower since 2013, with only one uptick during all that time.
  • Germany’s jobless rate for the June period stood at 4.2%, unchanged from May.
  • This is the lowest reading ever since June 1981.
  • France reports its jobless rate on a quarterly basis, and the jobless rate in Q1 2016 came in at 10.2%, unchanged from Q4 2015.
  • Italy’s jobless rate ticked higher to 11.6% from 11.5%.
  • Spain’s also reports its jobless rate on a quarterly basis, and the jobless rate for Q2 was still pretty horrible at 19.9%.
  • This is better than Q1’s 21.0% at least.
  • The most recent reading is also the lowest since Q3 2010.
  • Only Greece fared worse, with a jobless rate of 23.3% in June.

Inflation

  • This is the flash estimate for July 2016, so no detailed breakdown of components yet.
  • The headline reading for the whole Euro Zone’s Harmonized Indices of Consumer Prices (HICP) advanced by 0.2% year-on-year.
  • This is a tick higher than the 0.1% increase that was printed in May.
  • This is also the highest reading since January 2016’s 0.3% annual increase.
  • The headline reading has been improving for three straight months now.
  • However, HICP remains weak and has been in positive territory for only two months running after dipping into negative territory or flattening out for four months.
  • The annual core reading, meanwhile, came in at 0.9%, which is the same pace as last time.
  • Energy remained a major drag, since it was the only component that fell (-6.6% vs, -6.4% previous).
  • Among the major Euro Zone economies, Germany (0.4% vs. 0.3% previous) and France (0.2% vs. 0.4% previous) were in positive territory while Italy (-0.1% vs. -0.4% previous) and Spain (-0.6% vs. -0.8% previous) printed negative HICP numbers.

Business Conditions & Sentiment

  • Industrial production in the Euro Zone expanded by 0.6% month-on-month in June after contracting by 1.2% in the previous month.
  • On an annual basis, industrial production only expanded by 0.4%, missing expectations of a 0.7% increase.
  • On a slightly upbeat note, the June reading is a tick higher than May’s downwardly revised 0.3% pace of growth.
  • According to the report from Eurostat, the rebound in the month-on-month reading was “due to production of capital goods rising by 1.3%, durable consumer goods by 1.0% and non-durable consumer goods by 0.7%, while production of intermediate goods fell by 0.2% and energy by 0.6%.”
  • Also according to Eurostat, the weak annual growth was due to the 3.5% decline in energy production, but it was still in positive territory due to “production of capital goods rising by 1.1%, both durable consumer goods and non-durable consumer goods by 0.9% and intermediate goods by 0.4%.”
  • Moving on, Markit’s July manufacturing PMI reading fell from a six-month high of 52.8 to 52.0.
  • According to commentary from Markit, “the main factor underlying the drop in the headline index was a softer positive contribution from new order growth.”
  • Next, Markit’s July services PMI reading, it ticked higher to 52.9 from June’s 17-month low of 52.8.
  • The weak reading was largely due to business optimism falling to a 19-month low.
    As for Markit’s composite PMI, it ticked higher from 53.1 to a six-month high of 53.2 in July.
  • Commentary from Markit noted that job creation increased at the fastest pace in almost five-and-a-half years, which may translate to another dip in the jobless rate.
  • Further commentary stated that the survey data point to “only a modest 0.3% quarterly rate of economic growth at the start of the third quarter.”

Consumer Sentiment & Spending

  • Month-on-month, retail sales stagnated in June after growing by 0.4% in the previous month.
  • On an annual basis, retail sales grew by 1.6%, the same as last time.
  • There’s no clear trend for the month-on-month reading, but the year-on-year reading has been slowly trending lower since July 2015.
  • In terms of trends, annualized retail sales has been growing at a slower pace for four straight months now.
  • The stagnant monthly growth was due to the 0.3% increase in sales volume of non-food products and the 0.1% increase for “Food, drinks and tobacco” being cancelled out by the 1.3% decline in sales for automotive fuel.
  • The steady annual rate of increase, meanwhile, was “due to rises of 2.4% for automotive fuel, of 2.1% for non-food products and of 1.1% for food, drinks and tobacco.”
  • The European commission’s consumer confidence indicator dug deeper into pessimistic territory (-7.9 vs. -7.2 previous) during the July period.
  • The slide in confidence was attributed partially to the Brexit vote.
  • Consumer confidence in the Euro Zone has been worsening for the second consecutive month now.

Euro Zone: Growth

Euro Zone: Employment

Euro Zone: Inflation

Euro Zone: Business Conditions

Euro Zone: Consumer Sentiment & Spending

Putting it all together

The Euro Zone’s economic growth slowed down during Q2. That’s bad enough in itself, but it becomes worse when you consider that the decline was broad-based, with all the major Euro Zone economies taking hits, at least on a quarter-on-quarter basis.

Not only that, consumer confidence worsened in the aftermath of the Brexit referendum. And while overall business sentiment is still strong despite the pro-Brexit vote, commentary from Markit noted that the available data point to a quarter-on-quarter growth rate of only 0.3% in Q3, which is the same as the reading for Q2.

Inflation also remains subdued overall, with many Euro Zone members reporting negative HICP readings, including two of the larger economies (Italy and Spain).

And as icing on the cake, the potential banking crisis in the Euro Zone is still alive and well. Still, the ECB didn’t make a move during its July monetary policy decision, which is probably why the euro has been having a mixed performance during the past few weeks.

 


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