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June 27, 2017

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Eurozone recovery stalls as Germany, France ebb

FRANKFURT--Economic recovery in the 18-country eurozone appeared to stall in the second quarter, as the main growth engines, France and Germany, ground to a standstill, data showed on Thursday.

In Germany, Europe's biggest economy, activity actually contracted slightly by 0.2 percent, hit by weak exports and falling investment, according to a flash estimate by the federal statistics office Destatis.

And the region's number two economy, France, showed zero growth for the second consecutive quarter, according to the national statistics office INSEE.

In Germany, analysts had been forecasting zero growth or even a minimal contraction in the second quarter after the unusually mild winter boosted activity in the first three months of the year.

Destatis explained that, as a result of the mild weather, construction investment that would normally have been made later in the year was brought forward.

Exports were also weak, not climbing as strongly as imports, with the result that the net contribution of foreign trade to GDP growth was negative in the second quarter.

On the positive side, both private household and public sector spending increased, Destatis noted.

In France, the ongoing stagnation prompted the finance minister to slash the government's forecast for growth in 2014 to "around 0.5 percent" compared with a previous projection of 1.0 percent.

Michel Sapin said that "growth has broken down, in Europe and in France."

"With zero growth in the second quarter, thereby extending the stagnation we saw in the first, our country is slowing down and will not achieve the one percent growth observers were predicting three months ago," Sapin wrote in an opinion article in the daily Le Monde.

"This year, growth in France will be around 0.5 percent, and there is nothing that would allow us to forecast, at the moment, that growth in 2015 will be much above 1.0 percent," he added.

Analysts have warned for months that France, the second biggest economy in the eurozone, looks increasingly the weak link in a halting recovery as the government battles to push through much-needed reforms.

Temporary Blip?

But in Germany, at least, economists were confident that the second-quarter contraction would prove short-lived.

"The second-quarter setback reflects a combination of technical factors and external weakness, but not fundamental problems in the economy," said Berenberg Bank economist Christian Schulz.

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