Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. That’s the worst performance since the euro region emerged from a recession in late 2009. Economists had forecast the economy to expand 0.3 percent, according to the median of 34 estimates in a Bloomberg News survey.
Europe’s economy may struggle to gather strength as governments from Italy to Spain step up budget cuts to fight the debt crisis. In Germany, Europe’s largest economy, growth almost stalled in the second quarter. German Chancellor Angela Merkel will meet French President Nicolas Sarkozy today in Paris under pressure to do more to combat the fiscal crisis.
“Growth may virtually stagnate in the second half and there’s a threat of a renewed recession,” said Martin van Vliet, senior economist at ING Groep NV in Amsterdam. “It’s up to Merkel and Sarkozy to prevent further contagion to the economy; the longer the turbulences persist, the higher the risk of a recession.
By 1103 GMT, the Stoxx Europe 600 index was down 1.5% at 234.39. London's FTSE 100 was off 1.3% at 5282.06, Frankfurt's DAX was 2.5% lower at 5868.32, and Paris's CAC-40 declined 1.8% to 3180.40.
Sectors hurt by global growth concerns included autos, resources, construction and materials, together with industrial goods and services. All Stoxx Europe 600 indexes for each sector had posted losses of over 2% by noon in Europe.
Adding to the markets' downbeat mood Tuesday, a meeting later between French President Nicolas Sarkozy and German Chancellor Angela Merkel to discuss the European debt crisis has kept investors from taking new positions. With German officials already stating that eurobonds are not on the agenda at the meeting, traders said the market is now waiting to see whether both leaders will agree on a plan to bolster confidence in the euro zone.
The meeting has been billed as important, but it is difficult to see what progress will be made, given that expectations have been played down ahead of it, said Dermot O'Leary, an economist with Goodbody Stockbrokers.
"With [economic] growth clearly slowing, the pressures on euro leaders are only likely to intensify," added O'Leary.
In other data, the rate of inflation in the U.K. increased again--up 4.4% in the 12 months ended July, compared with 4.2% in June--forcing Bank of England Governor Mervyn King to write a letter to the Treasury explaining why inflation remains so far above the central bank's 2.0% target.
Other data due Tuesday include U.S. housing starts and U.S. import prices, both at 1230 GMT, and U.S. industrial production at 1315 GMT.
In the foreign-exchange markets, the euro was lower against the dollar because of the euro zone's weak GDP readings, as well as nerves ahead of the Franco-German summit.
The euro declined from a three-week peak against the dollar and European stocks fell for the first time in four sessions, with the Stoxx Europe 600 Index dropping 1.6 percent. The euro traded at $1.4363 at 1:04 p.m. in London, down 0.6 percent on the day.
Euro-area exports dropped a seasonally adjusted 4.7 percent in June from the previous month, when they rose 1.5 percent, the statistics office said in a separate report today. Imports slumped 4.1 percent and the trade deficit widened to 1.6 billion euros ($2.3 billion) from 800 million euros.
German GDP rose 0.1 percent in the second quarter after increasing 1.3 percent in the previous three months. That’s the worst performance since a contraction in the first quarter of 2009. The French economy unexpectedly stalled in the April-June period, while Italy’s GDP increased 0.3 percent.
“With Germany’s economy faltering, the euro region didn’t have any significant growth impulses,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf, Germany. “The second half will only show a modest expansion overall.
Companies may struggle to maintain their sales growth as economies around the world show signs of cooling. Hong Kong’s economy shrank for the first time since the global financial crisis in the April-June period. In Russia, economic growth weakened for a second straight quarter.
With exports cooling, Royal Bank of Scotland lowered its 2012 euro-area growth forecast to 1.1 percent from 1.6 percent, economist Nick Matthews said in an e-mailed note on Aug. 12. In the third quarter, the economy probably expanded 0.1 percent, he said.
“The external environment appears to have deteriorated more meaningfully than expected,” he said. “In an environment of continued periphery stress, we expect growth in the second half of this year to be much weaker than previously forecast.”
Second-quarter GDP rose 1.7 percent in the euro region from a year earlier, today’s report showed. The statistics office will release a breakdown of the GDP data next month.
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