The Eurozone is a step away from recovery as output in the currency bloc as a whole failed to grow over the second quarter of the year.While there are often volatile and country-specific swings in quarterly GDP comparisons, there are no bright spots in the picture when looking at performance in the first half of 2014 overall either.

 

The downturn was chiefly driven by poor performance in the bloc’s three largest economies, Germany, France, and Italy. The German economy, which accounts for over a quarter of aggregate Eurozone GDP, contracted by 0.2% in the second quarter. The French economy remained stagnant with zero growth over the same period, causing the government to halve its growth forecast for 2014 as well as admit that it will likely miss its budget deficit target for the year. Data released last week for Q2 showed that the Italian economy slipped back into recession, with output having now contracted for two quarters in a row.

 

This dismal performance from the currency area’s core was partly offset from positive growth elsewhere. The Iberian peninsula is the notable example here with the Spanish and Portuguese economies each expanding by 0.6% over the quarter. However, even here, what we see is a fragile recovery. It’s the adjective, not the noun, that should receive most of the attention. Credit conditions in Spain remain tight, and the woes of the Portuguese banking sector are not fully over after the collapse of Banco Espirito Santo last month.

 

Q2’s round of disappointing data across the bloc comes two months after the European Central Bank (ECB) launched a package of expansionary measures in an effort to speed up the recovery and reduce the risk of deflation. Reality, today’s data showed, did not submit to the ECB’s intentions. This adds pressure on Frankfurt to consider graduating from June’s pea-shooter stage to the bazooka that is QE. The risks, as noted by the ECB itself in its latest press statement last week, are on the downside: geopolitical tensions in Russia and Ukraine have caused considerable uncertainty among German firms, bringing down business confidence and the prospects for business investment. Overall, Cebr expects the Eurozone to expand by 0.7% over 2014, but more than a reading of present economic fundamentals this hinges on the ECB taking necessary steps to shore up the recovery.