LONDON – LONDON (AP) — Europe got further evidence that its unexpectedly strong economic recovery is slowing, with the news that German investor confidence fell sharply in September and eurozone industrial production unexpectedly stagnated during July.
The twin pieces of economic data have reinforced the view that the eurozone economy, which grew by a quarterly rate of 1 percent in the second quarter of the year — equivalent to an annualized rate of over 4 percent — is inevitably coming off the boil in the wake of faltering economic growth in the U.S.
The news had both European stocks and the euro in retreat Tuesday.
Eurostat, the EU's statistics office, said industrial production — the main impetus behind the spring burst in activity in the 16 countries that use the euro — was flat during July. That followed a 0.2 percent decline in June and huge increases over the previous three months.
The unchanged reading was lower than expected — the consensus forecast in the markets was that industrial output rose 0.2 percent during the month.
Meanwhile, the closely watched monthly ZEW survey revealed that investor sentiment in Germany, the eurozone's biggest economy, dropped by far more than anticipated during September.
Its main index slid to minus 4.3 during the month from August's positive of 14 — the drop into negative territory was unexpected as the consensus in the markets was for a far more modest decline to 10.
The picture emerging from the two indicators is that the eurozone is unlikely to repeat its first half performance during the second, as U.S. economic growth has slowed, many European countries enact austerity measures to get their public finances into shape and the previous need for restocking has diminished.
"The drop in ZEW economic sentiment in September and July's stagnation in eurozone industrial production confirm that the eurozone recovery is slowing again after Q2's strong expansion," said Jennifer McKeown, senior European economist at Capital Economics.
Though the eurozone economic recovery is easing, analysts doubt that it will return to recession, even though a number of its member countries like Greece continue to shrink as the budgetary measures aimed at overcoming a government debt crisis bite.
Most importantly for the fate of the eurozone is that Germany is expected to continue growing, albeit at a slower rate than the massive 2.2 percent quarterly rate posted in the second quarter of the year.
"The German economy will stay on its recovery path," said Simon Juncker, an economist at Commerzbank. "Economic growth will be weaker than in the strong second quarter but will still be above-average."
And across the eurozone, low interest rates and a continued increase in global trade volumes are expected to continue to support economic activity.
On Monday, the European Commission upped its forecast for eurozone economic growth this year to 1.7 percent from 0.9 percent in its forecast in May. However, it acknowledged a more moderate expansion in the second half of the year.