ECB under pressure to boost growth, analysts say

Construction worker, A5, near Darmstadt A mild winter in Germany had a knock-on effect on construction growth

Related Stories

Stagnation in eurozone growth has put pressure on the European Central Bank (ECB) to take measures to stimulate the European economy, analysts say.

Growth in the eurozone flatlined in the second quarter, and inflation also dropped, according to official figures.

The eurozone saw 0.0% growth compared with the first quarter, according to Eurostat figures.

Economists said that the figures would add to calls for the ECB to take action to boost growth and avoid deflation.

"Disappointing euro area growth and intensifying disinflation pressures increase the pressure on the ECB for further action in coming months," said Nick Stamenkovic, a strategist at RIA Capital Markets in Edinburgh.

"If the economy disappoints in the second half then the pressure on the ECB to start money-printing in early 2015 will intensify."

Start Quote

It is not just France where uncomfortable truths have been unveiled.”

End Quote

Schroders European economist Azad Zangana said: "There will undoubtedly be more pressure on the ECB to do more to boost growth.

"However, ECB president Mario Draghi is likely to argue that stimulus measures announced earlier this summer have yet to feed into financial markets or the real economy."

On Thursday official figures showed that the economic bloc's two largest economies, France and Germany, had both performed worse than expected.

Germany's Federal Statistics Office said the economy was "losing momentum".

German GDP contracted by 0.2% in the three months to the end of June, figures show, after growing by 0.7% in the first quarter.

And official figures show the French economy saw no growth in the quarter.

Italy, the eurozone's third largest economy, fell back into recession.

However, Portugal jumped from a 0.6% contraction in the first quarter to a 0.6% expansion in the second.

And Spain continued to recover, with 0.6% growth.

Meanwhile, annual inflation in the eurozone fell to 0.4% in July, its lowest rate since 2009.

BBC Europe editor Gavin Hewitt said the figures raise the risk of a contraction in general prices in the eurozone.

"The risk of deflation is growing," he said. "French consumer prices fell 0.4% month on month. Portugal's price index slumped 0.7% in July. Spain saw the steepest slide in consumer prices in five years."

line

Analysis

BBC Business reporter, Theo Leggett:

Last week, the president of the European Central Bank (ECB), Mario Draghi, described Europe's recovery as "weak, fragile and uneven". These figures certainly bear that out.

While the fall in output in Germany is likely to produce the bigger headlines, the most serious problems lie elsewhere.

That isn't to say Germany doesn't face challenges; its exports have already been affected by a slowdown in Russia, for example, while the crisis in Ukraine appears to be weighing down on business confidence.

There is also the question of how much impact sanctions will have.

However, economists believe Germany's economy remains structurally sound - and many of the factors currently limiting growth are short term.

Much greater concerns hang over France, the region's second biggest economy, which has recorded zero growth for the second quarter in succession, and Italy, which has fallen into recession again.

The evidence suggests that the eurozone recovery is faltering, or even going into reverse.

That is likely to increase the pressure on the ECB to follow other central banks by introducing a programme of quantitative easing.

line
'Significant setback'

The German Federal Statistics Office said that extremely mild weather at the beginning of the year had an effect on growth.

Christian Schulz, senior economist at Berenberg bank, said the contraction in the German economy was a "significant setback".

"It seems to be caused largely by weather," he said. "The mild winter this year means the usual spring recovery in construction didn't happen."

French worker, Rivierre nail factory, Creil French manufacturing output decreased after midweek public holidays increased potential days off

The crisis in Ukraine may also have had an impact on economic confidence in the country, he said.

"Putin has an impact on confidence, and thus, investment, and also a little bit on exports," Mr Schulz said.

While it is unlikely that economic sanctions on agricultural imports by Russia will have a direct effect on Germany in the third quarter, confidence may be knocked by instability in the region, he said.

German 10-year bond yields, the benchmark for euro zone borrowing costs, were 1 basis point down at 1.022% on Thursday morning, an all-time low.

France was suffering from a "long-term weakness" of lack of reform and underinvestment by business, he added.

French deficit

France has now seen two quarters of zero growth. The lack of growth was weaker than many economists had expected.

France's statistics agency, INSEE, said that GDP had "remained steady" in the second quarter.

It said that manufacturing output decreased again after a "high number of potential extra days off this quarter due to midweek public holidays."

French finance minister Michel Sapin said that France was unlikely to meet its deficit target for this year.

"The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending," Sapin wrote in newspaper Le Monde.

Mr Sapin said that France had revised its annual growth forecast for 2014 down to 0.5% from a previous 1.0% estimate.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    HOUSE PRICES 10:32:
    A chart showing house price growth over 10 years

    As this chart from the ONS shows. House price growth across the UK in percentage terms is nearing levels seen in the run up to the financial crisis. In six English regions - the South East, East Midlands, the East, the West Midlands, the South West and London - house price growth has now gone beyond pre-financial crisis levels suggesting the recovery in the property market has widened significantly this year.

     
  2.  
    MARKET UPDATE 10:23:

    The FTSE 100 has added to early losses, now down 0.5%.

     
  3.  
    HOUSE PRICES 10:10:
    Kentish town

    If London were removed the national statistics, average house prices would have risen by a more modest 7.9% in the year to July, the ONS says. In London house prices are now a staggering 39.7% higher than their previous January 2008 peak. The average price paid for a property in London in July was £514,000, the figures show.

     
  4.  
    INFLATION REACTION Via Email Ben Brettell, Senior Economist, Hargreaves Lansdown

    emails: "With inflation at a five-year low, it is difficult to see why the Bank of England should even consider raising interest rates at present. We are faced with uncertainty around the Scottish referendum, and there are signs the economy is slowing somewhat, with UK manufacturing activity growing at its slowest rate in 14 months in August."

     
  5.  
    HOUSE PRICES 09:45:
    A view of houses in north London

    The average UK house price rose 11.7% in the year to July to £272,000 official figures show, up from 10.2% in June. On a seasonally adjusted basis the ONS says house prices rose by 1.6% month-on-month. As usual house price growth has been driven by the capital where the average property increased in value by 19.1% in the year to July.

     
  6.  
    INFLATION 09:35:
    Chart showing falling inflation

    Food prices actually fell 1.1% on the year, according to the Office for National Statistics. ONS statistician Richard Campbell told BBC News that a price war among supermarkets and a good growing season are factors behind lower food prices. Falling petrol and diesel costs were the next biggest contributor to lower inflation.

     
  7.  
    INFLATION Breaking News

    Consumer Price Inflation for August fell to 1.5% from 1.6% a month earlier, official figures show. The biggest contributor to the slowdown in the rate came from food and drink prices, the Office for National Statistics says.

     
  8.  
    INFLATION 09:19:

    We await UK August inflation numbers due at 09:30. In July Consumer Price Index (CPI) inflation fell to 1.6% from 1.9% a month earlier. However average wage growth was just 0.6% in the three months to June.

     
  9.  
    PHONES 4U COLLAPSE 09:11: Radio 5 live
    Phones 4U shop

    Phones 4U founder John Caudwell is back this time on Radio 5 live. He says that Phones 4U would never have pushed the network operators so hard in negotiations that they would have been forced to walk away. It would have made no sense to have alienated their only suppliers, he argues. But he concedes that he doesn't know the facts of the matter.

     
  10.  
    HIGH STREET VACANCIES 09:00:
    Charity shops

    Overall high street vacancy rates have fallen in the first-half of the year, according to The Local Data Company (LDC). On Radio 5 live Matthew Hopkinson of LDC says there are lots more charity shops, pound shops and also independent retailers. He also says that vacancy rates in the North West are double that of London (16.9% versus 7.8%).

     
  11.  
    ASOS SHARES SLUMP 08:46:

    ASOS shares are almost 13% lower so far this morning. The online fashion retailer warned that profits would not grow in the current financial year. Sales rose 15% in the three months to the end of August, but that was a sharp slowdown from the previous quarter when sales accelerated 25%. ASOS shares are down more than 60% over the last six months.

     
  12.  
    PHONES 4U COLLAPSE 08:30: BBC Radio 4

    The former chief executive of the Office for Fair Trading John Fingleton tells Today it is "highly unlikely that Vodafone and EE colluded to reduce high-street competition by cancelling their contracts with Phones 4 U." Mr Fingleton, who was head of the OFT from 2005 until 2012, says there is "no evidence" of collusion and rejects any call for an investigation into the matter.

     
  13.  
    PHONES 4U COLLAPSE 08:23: BBC Radio 4

    As well as condemning the network firms, Mr Caudwell also dishes out criticism for the BC Partners, the private equity firm that owned Phones 4U. He says it took £200m out of the business. "I don't like the fact they did it because they left the business much more vulnerable but it was manageable," he tells Today.

     
  14.  
    HEADLINES
    • Inflation rate falls to 1.5% in August
    • Phones 4U 'assassinated' by networks claims Caudwell
    • Calpers withdraws $4bn from hedge funds
     
  15.  
    PHONES 4U COLLAPSE 08:09: BBC Radio 4

    The "ruthless actions" of mobile phone networks were behind the demise of Phones 4U says founder John Caudwell , who sold the business in 2006. It was an "unprecedented assassination" of the company by the networks which had partnered the firm for 20 years he said on the Today programme. The idea the Phones 4U managers "dug their heels in" during negotiations is "preposterous", he says adding "I simply don't believe Vodafone".

     
  16.  
    THOMAS COOK 07:56:
    The logo of travel agency Thomas Coo

    UK holiday operator Thomas Cook says it expects full-year earnings to the end of September will be in the range of £315m to £335m putting it broadly in line with analyst expectations. It added weaker prices, which it first warned about in May, continued but it had offset that impact by speeding up its cost-cutting programme.

     
  17.  
    CALPERS DUMPS HEDGE FUNDS 07:41:

    US pension giant Calpers is withdrawing all of its investments in hedge funds, blaming their expense and complexity. That's a cool $4bn (£2.4bn) leaving 30 hedge funds. Calpers, which stands for the California Public Employee's Retirement System, is the biggest public pension fund in the US.

     
  18.  
    Via Twitter Nick Bubb, retail analyst

    tweets: "Ouch....Q4 sales at ASOS weren't quite as bad as feared (+15%), but ASOS warn that there will be no profit recovery in y/e Aug 2015"

     
  19.  
    MAURICE LEVY 07:30:
    Mauricy Levy

    Maurice Levy, one of the most influential figures in advertising and in France, is to stand down as chairman of advertising giant Publicis in 2016. He is credited with turning Publicis into one of the world's biggest advertising agencies.

     
  20.  
    ASOS TRADING 07:18:
    ASOS

    Asos says that a fire at its Barnsley distribution centre in June resulted in lost sales of between £25m and £30m. But the online fashion retailer expects annual profit to still be in line with market expectations. Total first quarter sales rose 15%.

     
  21.  
    SCOTTISH INDEPENDENCE 07:05: BBC Radio 4
    pound coins

    What will happen to the currency on Friday it Scotland votes in favour of independence? George Godber of the fund manager Miton tells the Today programme that he can see "a very significant fall" in the value of the pound, maybe as much as 10% over about a week. That's because the UK's status as the fastest growing Western economy and a safe haven will be put in jeopardy, he says.

     
  22.  
    RUSSIA GAS 06:49: BBC Radio 4

    Europe could cope if Russia were to interrupt gas supplies in retaliation to European sanctions, says Malcolm Bracken of stockbrokers Redmayne Bentley. Norway can increase oil and gas production and gas reserves are in a pretty healthy shape, he says. Vladimir Putin needs money from the West more than he's letting on so we shouldn't be too worried about the effect of sanctions, says Mr Bracken on Today.

     
  23.  
    BUSINESS RATES 06:43:

    More than 100 of the UK's biggest companies, including Tesco and Marks & Spencer, have called for an overhaul of business rates. In an open letter to the Daily Telegraph they say business rates "are no longer fit for purpose for the 21st century". The tax brings in £25bn for the Treasury annually.

     
  24.  
    OIL PRICES 06:35: BBC Radio 4

    Brent Crude fell below $97 a barrel on Monday for the first time in two and a half years. Malcolm Bracken of stockbrokers Redmayne Bentley explained the fall on the Today programme. "There's been a slowdown in China, cars are becoming more efficient, the war premium is falling, sanctions haven't really had an effect on oil production in Russia and money is tightening," he says.

     
  25.  
    ALIBABA SHARE SALE 06:20: Radio 5 live
    Alibaba head office, Hangzhou

    Alibaba has raised the price range of shares in its US stock market debut and could now raise $25bn (£15.4bn). The funds will allow the Chinese internet company "to make its mark" in the US market place says BBC Business presenter Rico Hizon on Wake Up to Money. Company executives are on an international road show to market the shares. Today there are in Singapore, tomorrow London.

     
  26.  
    SCOTTISH INDEPENDENCE 06:12: Radio 5 live
    Scottish flag

    The leaders of the three main parties at Westminster have signed a pledge to devolve more powers to Scotland, if Scots reject independence. On Wake Up to Money Colletta Smith, the Economics Correspondent for BBC Scotland says it amounts to an "agreement to make some kind of agreement". Details will have to be worked out after the vote, she says.

     
  27.  
    PHONES 4U COLLAPSE 06:02: Radio 5 live
    Phones 4U

    "I'm not surprised it fell over," says fund manager, George Godber in reference to the failure of Phones 4U over the weekend. On Wake Up to Money Mr Godber says the company did "not have any room for financial manouevre" because its private equity owners had recently loaded it with £250m in debt. Phones 4U founder John Caudwell will be on Radio 5 at around 08:45.

     
  28.  
    06:00: Matthew West Business Reporter

    Morning folks as always you can get in touch with us here at bizlivepage@bbc.co.uk and on twitter @bbcbusiness.

     
  29.  
    05:59: Ben Morris Business Reporter

    Good morning. It's shaping up to be a busy morning with inflation figures due at 09:30 and we'll see what John Caudwell has to say about the demise of the company he founded, Phones 4U. Stay with us.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.