Photographer: Christophe Morin /Bloomberg

French, Spanish Economies Lost Momentum Before U.K. Brexit Vote

  • ECB looking to third quarter to see impact of U.K. vote
  • Euro-area confidence registered surprise gain: Commission

French growth unexpectedly stalled in the second quarter and Spain’s expansion slowed, underlining the fragile footing of the economy even before British voters dealt the region its latest blow by opting to leave the European Union.

Gross domestic product in France failed to expand in the three months through June after rising a revised 0.7 percent in the previous period, national statistics office Insee said Friday. Economists expected a 0.2 percent increase, a Bloomberg survey showed. Spanish GDP increased 0.7 percent, in line with analysts’ projections.

Data from two of the euro area’s four largest economies offer a glimpse of the region’s performance in the quarter, with a first estimate for the 19-nation bloc is scheduled for 11 a.m.

European Central Bank President Mario Draghi said last week that visibility is low in the aftermath of Britain’s June 23 vote, though he remains ready to act in the months ahead should the planned separation damp growth or delay the return of inflation to the institution’s goal.

“What we’re getting is a snapshot of the economy before the impact of Brexit,” said Gilles Moec, chief European economist at Bank of America Merrill Lynch in London. “The ECB is more interested in what the third quarter is going to look like and whether there is any sign of Brexit taking a toll.”

Surveys suggested so far that the impact on the broader European economy remains muted. Euro-area economic confidence unexpectedly improved in July, with the European Commission reporting Thursday that an index of business and consumer sentiment rose to 104.6 from 104.4 the previous month.

That could undermine arguments for the ECB to extend its bond-purchase program beyond March 2017 or tweak its terms. While Draghi has previously told euro-area finance ministers that Brexit could cut half a percentage point from growth over three years, that calculation was based on an assumption of weaker trade that he cast doubt on at a July 22 press conference in Frankfurt.

“With Brexit, there’s the trade channel, but is it the most relevant?” he said. “One would rather think of confidence or financial-services channels.”

For France, where strikes at refineries damped output in the second quarter, economists are dismissing the slowdown after GDP registered its strongest increase in almost three years in the January-March period. The government is maintaining its full-year growth forecast of 1.5 percent and will update its outlook for 2017 in September, Finance Minister Michel Sapin said after the report.

“The second-quarter figure is disappointing,” he said in a statement. “But over and above the quarterly volatility, the French economy still has the recovery dynamic.”

Spanish growth in the April-June period was the weakest in six quarters and probably driven by household consumption supported by a recovering jobs market and easier financing conditions. The unemployment rate dropped to 20 percent in the quarter, the lowest level in almost six years. The government is expected to present upgraded economic projections later Friday.

Austria’s recovery ground to a halt in the second quarter, with GDP unchanged from the previous three months, when it increased 0.6 percent.

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