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Eurozone beats slowdown expectations

Brussels

EUROZONE growth was better than expected in the second quarter, flash estimates showed on Tuesday, in a sign that the negative effects of global trade tensions might be seen only later in the year.

However, while the economy expanded by 0.4 per cent in Q2, above forecasts of 0.3 per cent growth, industrial output in the 19-country currency bloc fell sharply in June driven by a collapse in machinery and equipment investment, European statistics office Eurostat said.

Eurostat's flash growth estimate was also higher than its previous estimate of 0.3 per cent growth.

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The agency also revised up the year-on-year growth to 2.2 per cent from its previous 2.1 per cent estimate.

The revised monthly figure, if confirmed by final data to be released on Sept 7, would show that the bloc has maintained a 0.4 per cent growth pace in the first two quarters of the year, confounding initial fears of a slowdown in Q2.

The better-than-expected estimate could increase the European Central Bank's confidence in winding down its asset purchase programme, but the growth outlook remains unclear, given the industrial output data.

The bloc was outperformed by the US which doubled to 1.0 per cent its quarterly growth from 0.5 per cent in the first quarter of the year.

Eurostat's upward revision came after Germany, the bloc's largest economy, recorded a better-than-expected 0.5 per cent expansion in Q2, driven by consumption and state spending that could signal the beginning of a shift from Germany's export-led economic model.

But it said the bloc's industrial output fell by 0.7 per cent in June on the month, recording a larger drop than expected by economists polled by Reuters who had forecast a 0.4 per cent fall.

Germany's monthly output was down by 0.6 per cent in June after a 2.4 per cent growth in May, Eurostat said.

"For the months ahead, production seems to be limited by concerns about the global economy on the one hand and capacity constraints on the other," Bert Colijn, a senior economist at ING bank said in a note to clients, predicting that the eurozone's current growth rate would remain unchanged this year.

"2018 has been somewhat of a disappointment so far," he added.

The eurozone's highly volatile industrial production had expanded by 1.4 per cent in May, Eurostat said, revising up its previous estimate of 1.3 per cent growth.

The production plunge was mostly driven by a 2.9 per cent drop in the output of capital goods, like machinery, in a sign that firms may be preparing for slower growth in the coming months.

The output of consumer and intermediate goods also fell, while the production of energy increased by 0.5 per cent from May.

On the year, industry output was up by 2.5 per cent in June, and the May figure was revised up to 2.6 per cent from a previous estimate of a 2.4 per cent increase. REUTERS