Investors eye stimulus as GDP falls again in troubled Eurozone

Tim Wallace
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THE EUROZONE’S economy shrank in the second quarter, official data showed yesterday, although powerhouse Germany continued to grow at a slow pace.

But markets actually rose on the poor figures as investors hoped the fall in output would pile more pressure on Eurozone leaders to stimulate the economy.

The German DAX jumped 0.87 per cent and the Italian FTSE MIB rose 0.75 per cent, with banks leading the way. Italian UniCredit saw shares rise 1.36 per cent per cent, while Santander rose 0.68 per cent.

“We anticipate another interest rate cut before the end of the year and certainly anything quantitative easing-based would tend to benefit the banking sector more than others,” said Scott Corfe from the Centre for Economics and Business Research (CEBR). “But these GDP figures do make pretty grim reading and build the pressure on the euro as there is a widening gap between the periphery and Germany.”

Eurozone GDP fell by 0.2 per cent on the quarter, and followed a flat three months at the start of the year and a 0.3 per cent contraction recorded in the final quarter of 2011.

Germany’s economy expanded by 0.3 per cent, while France’s economic output stagnated for the third consecutive quarter.

But the periphery performed far more poorly – Spain’s GDP contracted by 0.4 per cent and Italy 0.7 per cent.

Meanwhile the Greek government raised €4bn (£3.14bn) in three-month debt, paying 4.43 per cent to roll over previous borrowing and avoid running out of cash.