Eurozone economy rebounds as COVID-19 restrictions recede

BRUSSELS: The eurozone economy rebounded by a strong 2 per cent in the second quarter, according to official data released on Friday, as reopened businesses lifted activity out of the pandemic doldrums.

The expansion in Europe was stronger than in the United States, where the economy grew by 1.6 per cent compared to the previous quarter and China, which saw a 1.3 per cent expansion in the period.

Some of the biggest rates of growth were seen in Italy and Spain, the countries worst hit by the first wave of the COVID-19 crisis. Portugal posted a stellar increase of 4.9 per cent.

"The eurozone economy continues to perform like a diesel engine: it takes a while to get going but don't underestimate it once it's picked up steam," said Bert Colijn, Senior Economist at ING bank.

Growth in Germany, the EU's biggest economy, however, disappointed at 1.5 per cent while France renewed with solid growth after a period of stagnation in the winter.

As an automaking powerhouse, "Germany suffers much more severely from international shortages, because it is much more dependent on imported inputs from Southeast Asia, from China," said Selin Ozyurt, economist at credit insurance firm Euler Hermes.

DELTA WORRIES

The 19 countries that use the euro are still trying to catch up the ground lost during the COVID-19 pandemic in which its economy suffered the most in the developed world.

"Germany should reach that benchmark in the second half of the year, but we don't expect the southern economies to do so until well into 2022," warned Andrew Kenningham, Chief Economist at Capital Economics.

All eyes are now on whether the momentum can hold, with the Delta variant of the virus seeing countries consider new orders to limit activity that could put a brake on the economy's growth dynamic.

Eurostat, the EU's official data agency, also said that inflation rose to 2.2 per cent, above the European Central Bank's target of near, but below, 2 per cent.

Higher consumer prices, brought on by energy costs and clogged supply chains, are becoming a political hot potato.

Influential voices from Germany are calling for the ECB to cool the economy by tapering down its historic levels of stimulus, but the central bank has made it clear that money taps will keep flowing.

These must remain as long as the pandemic continues "to cast a shadow", ECB chief Christine Lagarde said last week.

In a big release of data before the summer break, Eurostat said unemployment in June fell to 7.7 per cent in the 19-country eurozone, 0.3 percentage points lower than a month earlier.

The unemployment rate for the EU as a whole followed a similar trend, declining by 0.2 percentage points over a month to 7.1 per cent.

According to Eurostat, some 14.9 million men and women were unemployed in the EU in June, including 12.5 million in the eurozone.