Eurozone recovery is stalled over Russian sanctions
The eurozone recovery ground to a halt in the second quarter after German output shrank and France flatlined, data has shown. Hopes for an upturn for the 18-nation bloc have been hit by the impact of tit-for-tat sanctions with Russia over the Ukraine crisis.
Bank of England governor Mark Carney cited this week the "modest" pace of growth in the eurozone, Britain's biggest trading partner, as a key challenge facing the UK.
Markets had been expecting the eurozone to post 0.1% growth but even this meagre expansion proved too much and instead it was recorded as 0%, following a 0.2% improvement in the previous period.
Germany shrank by 0.2%, slightly worse than feared, while, France posted zero expansion for the second successive quarter.
The European Central Bank has slashed interest rates to record lows as policy-makers try to stave off the threat of a damaging deflation spiral. But experts believe fears of an escalation in the Ukraine crisis are holding back investment and postponing some spending.
Latest figures from Italy show it returned to recession in the second quarter, though Spain and Portugal bucked the gloomy trend with each country posting growth of 0.6% for the period.
The eurozone's struggles contrast with the UK, which is expected to see gross domestic product (GDP) growth of 0.8% for the quarter confirmed today. It is forecast to post the strongest performance among major world economies this year.
Peter Vanden Houte of ING Bank said the eurozone figure was even worse than expectations.
"The figures show the upturn remains too weak to withstand external shocks meaning that GDP growth will probably remain stuck in stop-and-go mode."