Euro zone sees weak growth amid high unemployment

EXPERTS are warning that the euro zone`s growth, so far boosted mainly by exports, will not be self-sustaining unless consumer spending rebounds, which has been held back by unemployment at near 12-year highs.

Official euro zone retail trade figures show consumer spending remained soft in June.


Markit said its final Eurozone Services Purchasing Managers` Index of around 2,000 companies, ranging from banks to hotels, rose to 55.8 in July from June`s 55.5. A Reuters` report said the "upturn was driven by Germany, Europe`s largest economy, although growth there was not as strong as initially estimated and, worryingly for policymakers, there is a growing divide between euro zone economies. Italy`s service sector shrank after seven months of growth while in Spain the pace of growth stumbled."


In addition, the composite Purchasing Managers` Index, made up from the services and recent manufacturing sector numbers and often used to predict overall growth, rose to 56.7 this month from 56.0 in June, in line with flash estimates, said Reuters.


"The euro zone economic recovery remained very much on track as we move into the second half of 2010," Chris Williamson at Markit said, adding that gross domestic product (GDP) growth "is probably running at a quarterly rate of 0.7 per cent, the best for three years."


The composite employment index, which turned positive in May, climbed to 51.4 last month from June`s 50.6, its highest level since April 2008.


Euro zone unemployment held fast at 10 per cent for the fourth month in a row in June.


The euro zone economy rose by 0.2 per cent between January and March after 0.1 per cent growth in the last three months of 2009.


A Reuters poll estimates that the euro zone economy increased by 0.6 per cent in the second quarter. The report added that it is seen increasing by 1.3 per cent next year, compared to 2011 forecasts for 2.0 per cent growth in Britain and 2.8 per cent for the United States.