ECB interest rate cut likely as Eurozone economy weaker than expected

Eurozone growth has been revised down to 0.2%, from 0.3% initially forecast for the second quarter, in a blow to Europe’s recovery.

This was the latest estimate for gross domestic product (GDP) growth in the euro area in the three months to June from Statistics body Eurostat.

Poland recorded the highest increase of GDP compared with the previous quarter at 1.5%, followed by Greece at 1.1%, and the Netherlands, came in at 1.0%. The highest decreases were observed in Ireland (-1.0%), Latvia (-0.9%) and Austria (‑0.4%).

Eurostat also revised its figure for the 27-country European Union's economy, which expanded by 0.2%, slightly lower than the previous estimate of 0.3%.

Leo Barincou, senior economist at Oxford Economics, said: "Though the headline revision mostly stems from volatile Irish GDP figures, the detailed breakdown validates our concerns that the eurozone domestic economic momentum is feeble at best, with most of second quarter growth stemming from external trade."

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The data follows industrial production figures on Friday from Germany, Europe’s largest economy, which showed output fell by 2.4% in July from the previous month, putting pressure on the European Central Bank (ECB) to set its policy to support growth.

It was much worse than the 0.3% fall predicted by economists. Production dropped by 8.1% in the automotive industry, following a 7.9% rise in June. The declines in the manufacture of electrical equipment (-7.0%) and the manufacture of metal products (-3.8%) also had a significantly negative impact, Destatis said.

Meanwhile, Eurostat also revealed that household final consumption expenditure decreased by 0.1% in the euro area and increased by 0.1% in the EU.

This was after a 0.3% rise in the euro area and 0.4% increased in the EU in the previous quarter.

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It also revealed that government final consumption expenditure increased by 0.6% in the euro area and by 0.7% in the EU (after +0.1% in both zones in the previous quarter),

Gross fixed capital formation decreased by 2.2% in the euro area and by 1.8% the EU (after -1.8% and -1.7% respectively), and exports increased by 1.4% both in the euro area and in the EU.

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