Italian economy stagnates as German growth slows

Gross Domestic Product (GDP) growth shrank to zero per cent in the second quarter compared to 0.3 per cent in the first quarter.Germany’s economy also slowed in the second quarter, albeit less markedly than had been expected.

Europe’s largest economy expanded by 0.4 per cent, down from 0.7 per cent in the first quarter, but above forecasts of 0.2 per cent.Overall, a second estimate of GDP across the eurozone confirmed that growth halved to 0.3 per cent from 0.6 percent in the first three months of the year.GDP also fell across the 28-nation European Union to 0.4 per cent from 0.5 per cent between the first and second quarters.

In Italy, analysts had expected GDP to grow by between 0.1 per cent and 0.3 per cent.Italian Prime Minister Mario Renzi, is battling to reduce the bad debt in its banking sector, which is currently buried under €360bn worth of bad loans. Monte dei Paschi di Siena, Italy’s third largest bank and the world’s oldest lender, is saddled with €46.9bn of bad debt.

Alberto Bagnai, economic policy professor at the University of Chieti-Pescara, said: “There is no way to solve the banking problem without economic growth. If the whole nation doesn’t start earning more it can’t pay back its debts – public or private.”

The government expects the country to grow by 1.2 per cent this year. However, the International Monetary Fund recently reduced its economic growth from 1.1 per cent to 1 per ent.The new data means that growth in the Eurozone’s three biggest economies – Germany, France and Italy – has either slowed or completely stalled between the first and second quarters.

France recorded no growth between April and June after GDP rose by 0.7 per cent in the first quarter, boosted by business from the Euro 2016 football tournament.
In contrast, Greece reported a rare rise in GDP – which increased by 0.3 per cent compared to a 0.1 per cent fall in the first quarter. Holidaymakers are choosing the likes of Greece and Spain over politically volatile Turkey.

Nikos Magginas, an economist at National Bank of Greece, said: “Domestic demand was probably better than expected because of tourism. The numbers point to a positive turnaround in the economy in the second half of the year.”
Europe’s engine room

In Germany, exports and consumer spending were stronger than forecast but investment in construction and machinery slowed.Commenting on “Europe’s engine room”, Carsten Brzeski, economist at ING-DiBa, warned that Germany must increase investment to support growth.

However, he said it could be hampered by “increased uncertainties after the Brexit vote, continued structural weaknesses in many eurozone countries and a renewed global slowdown’’.Joerg Zeuner, economist at KfW, said: “The decision to leave the EU will hit the British economy, and the slowdown will spread to Germany through muted exports.

“The UK is an important market, especially for German car makers, but also for our chemical and pharmaceutical industries.”New data also revealed that German inflation rose in July, up by 0.4%, fuelled by rising food and services prices.Inflation was tempered by the falling cost of energy and clothing. Destatis, Germany’s statistics office, said stripping out energy, inflation would have been 1.3 per cent in July.