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Sept. 5 (Bloomberg) -- The euro-area’s economic recovery ground to a halt in the second quarter as investment slid for the first time since the start of 2013.
Gross domestic product in the three months through June was unchanged from the first quarter, when it increased 0.2 percent, the European Union’s statistics office in Luxembourg, said today. The reading confirmed Eurostat’s Aug. 14 estimate.
The European Central Bank unexpectedly cut interest rates yesterday and said it’ll buy assets as it battles to revive flagging confidence in the economy. President Mario Draghi is struggling to boost inflation that’s running at a fraction of the ECB’s goal against a backdrop of near-record unemployment and conflicts in the Middle East and Ukraine.
“The measures will have positive effects on the economic outlook,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The package will likely put some further downward pressure on the euro, which will give an impulse to economic growth and inflation. In addition, it will help to improve bank lending.”
Gross fixed capital formation in the euro area dropped 0.3 percent last quarter, today’s report showed. Household consumption climbed 0.3 percent and government spending rose 0.2 percent.
The euro dropped below $1.30 for the first time since July 2013 after the ECB cut its official interest rates to record lows yesterday and Draghi announced a purchase program for asset-backed securities and covered bonds. The measures come just three months after a package of rate cuts and a targeted lending program aimed at bolstering credit supply.
The ECB also lowered its 2014 and 2015 macroeconomic forecasts. GDP is now predicted to expand by 0.9 percent this year and 1.6 percent in 2015, instead of the previous 1 percent and 1.7 percent. Inflation is seen at 0.6 percent this year instead of 0.7 percent previously. The inflation outlook for 2015 is unchanged at 1.1 percent.
Companies have reflected the bleaker outlook. Germany’s VCI chemical trade group, which represents firms including BASF SE and Lanxess AG, said sales and production this year will be lower than previously anticipated as industrial customers curb production. Vinci SA, Europe’s biggest builder, cut its 2014 sales forecast amid falling demand in France and in U.K. construction.
“With regard to the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining consistent with a modest expansion,” Draghi said yesterday.
Having led the currency bloc out of its longest-ever recession, Germany’s economy shrank 0.2 percent last quarter in its first contraction since the start of 2013, today’s data confirmed. A separate report today showed German industrial production climbed more than economists forecast in July.
France stagnated last quarter and Italy succumbed to its third recession since 2008. At the same time, the Spanish economy expanded at the fastest pace since 2007, and the Netherlands and Portugal returned to growth.
“There’s no doubt, the risks to the downside have increased,” said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. “France and Italy will remain the big headaches in the third quarter, where the most-recent surveys proved disappointing.”
--With assistance from Kristian Siedenburg in Vienna and Stefan Riecher in Frankfurt.
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