US records weak Q2 growth while euro zone slows

Consumer spending, which accounts for more than two-thirds of US economic activity, was responsible for almost all of the rebound in GDP growth in the second quarter, increasing at a 4.2 per cent rate.
Consumer spending, which accounts for more than two-thirds of US economic activity, was responsible for almost all of the rebound in GDP growth in the second quarter, increasing at a 4.2 per cent rate.PHOTO: AGENCE FRANCE-PRESSE

WASHINGTON/BRUSSELS • The United States economy grew far less than expected in the second quarter as inventories fell for the first time since 2011, but a surge in consumer spending pointed to underlying strength.

Growth in the euro zone also slowed in the same quarter with analysts warning that the consequences of Brexit could harm the economy further later in the year.

In the US, gross domestic product increased at a 1.2 per cent annual rate after rising by a downwardly revised 0.8 per cent pace in the first quarter, the Commerce Department said yesterday.

The economy was previously reported to have grown at a 1.1 per cent pace in the first quarter. While the drop in inventories weighed on GDP growth last quarter, that is likely to provide a boost to output for the rest of the year. Consumer spending, which accounts for more than two-thirds of US economic activity, was responsible for almost all of the rebound in GDP growth in the second quarter, increasing at a 4.2 per cent rate.

Despite the lingering effects of the US dollar's rally and weak global demand, exports rose in the second quarter, helping to narrow the trade deficit. Trade added 0.23 percentage point to GDP growth.

In the euro zone, growth slowed to 0.3 per cent, official data showed. The Eurostat statistics agency said economic growth in the 19-nation single-currency bloc halved in the April to June period from a far more robust expansion of 0.6 per cent in the previous quarter.

The period covered by the gross domestic product data largely pre-dates the shock vote in late June by non-euro Britain, which the European Central Bank warned last week would negatively influence growth in Europe for years to come.

Signals so far are that economic activity in the euro zone is proving resilient despite the Brexit vote.

"With the Brexit risk materialising on June 23, the euro zone growth outlook has weakened," said Mr Florian Hense, an economist at Berenberg Bank, in anticipation of the growth data.

But "so far... risks to the outlook look less tilted to the downside than before", he added.

Eurostat also announced that euro zone consumer prices rose 0.2 per cent this month after a gain of 0.1 per cent in June as the single-currency bloc edged further away from the dangers of deflation.

AGENCE FRANCE-PRESSE, REUTERS

A version of this article appeared in the print edition of The Straits Times on July 30, 2016, with the headline 'US records weak Q2 growth while euro zone slows'. Print Edition | Subscribe