SNAPSHOT2 min read

Slowing eurozone needs fiscal boost

A sluggish outlook and low inflation suggest the European Central Bank is inching towards further stimulus, which we don’t think will be enough.



Azad Zangana
Senior European Economist and Strategist

The preliminary estimate of eurozone GDP shows the monetary union’s economy slowed in the second quarter to 0.2% quarter-on-quarter from 0.4% growth in the first quarter of the year.

The year-on-year comparison also showed a slowdown, from 1.2% to 1.1% over the same period. The figures published today were in-line with expectations, but as these are early estimates, few details of the drivers exist.

What does the data from member states show?

Some member states have also published their preliminary estimates, which provide some colour.

France saw a marginal slowdown from 0.3% to 0.2% GDP growth, reporting slower household spending and some destocking. To the upside, investment picked up to its fastest rate of quarterly growth for a year, while government spending also grew at its fastest rate since the third quarter of 2017. Meanwhile, France saw an improvement in its net trade performance, but only because there was a slowdown in imports. Growth in exports remains sluggish, which is unsurprising given the ongoing tensions and uncertainty in global trade.

It was a similar story elsewhere in the eurozone. Spain reported a slowdown from 0.7% to a 0.6% growth, while growth in Belgium eased from 0.3% to 0.2%. Austria’s growth fell from 0.4% to 0.3%, while Italy’s economy stalled, having grown by 0.1% in the first quarter.

Germany has yet to report its growth figures, but industrial production data already available points to a potential contraction for the second quarter.

Overall, a subdued set of growth figures for the second quarter. External demand remains weak amidst the uncertainty caused by rising global protectionism, while a temporary boost from warm weather from the start of the year has faded.

What is the outlook for the second half of 2019?

Looking ahead, private business surveys are weak, especially those tracking the manufacturing sector. A further risk that is unfolding is the dangerously low water levels of the river Rhine – a crucial shipping transport route for German manufacturers. If water levels continue to fall as they did last autumn, we could see another closure of the route which would hit chemical producers particularly hard.

In addition to the growth figures, the early inflation figures were also released, showing a fall in the annual rate to 1.1% in July from 1.3% in June, and the lowest inflation rate since February 2018. Subdued growth coupled with low inflation support the case for policy easing.

Is monetary easing the solution to slower growth?

The European Central Bank is inching its way to potentially cutting interest rates further and/or restarting quantitative easing. However, and as we have said in the past, we do not believe this will be enough. Fiscal policy has to play a greater role in boosting demand, especially where fiscal space exists in Northern Europe.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Azad Zangana
Senior European Economist and Strategist


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.