Europe’s Growth Engine Stutters as Spain Beats Germany.

http://www.bloomberg.com/news/2014-08-10/europe-s-growth-engine-stutters-as-spain-beats-germany.html

Germany probably underperformed Spain last quarter for the first time in more than five years as the euro-area recovery almost ground to a halt.

After leading the currency bloc out of its longest-ever recession last year, Europe’s largest economy shrank in the three months through June, according to a Bloomberg News survey before data this week. The downturn in the region’s powerhouse highlights the fragility of a revival that European Central Bank President Mario Draghihas described as modest and uneven.

The 18-nation euro area is struggling to boost growth and inflation (ECCPEMUY)even amid unprecedented ECB stimulus, with Draghi citing inadequate structural reforms as a key reason. While the German data is distorted by mild winter weather that front-loaded output earlier in the year, Bundesbank President Jens Weidmann has warned the country must also adjust or risk losing its role as a growth engine.

This week’s reports “will probably underline that the problems in the euro zone have moved north,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “The weak recovery will definitely provide the doves in the ECB Governing Council with a weighty argument to demand further expansionary measures.”

Reform Call German GDP shrank 0.1 percent in the three months through June, the first contraction since 2012, according to the median estimate in the Bloomberg survey. The economies of the euro area and France grew 0.1 percent, separate surveys show. The reports will be published on Aug. 14 along with those for the Netherlands, Austria and Portugal.

Reform Call

Spain posted an expansion of 0.6 percent in the same period, the National Statistics Institute said last month. Italian GDP fell 0.2 percent, after a 0.1 percent decline in the previous quarter, taking the country into its third recession since 2008. Draghi took aim at Italy last week for lack of progress in reforms.

“It’s pretty clear that the countries that have undertaken a convincing program of structural reforms are performing better, much better, than the countries that have not done so,” he said on Aug. 7 in Frankfurt after the ECB left interest rates unchanged at record lows.

Sound Fundamentals

“The usual spring rebound in construction was weaker,” said Christian Schulz, senior European economist at Berenberg Bank in London. “Germany’s economy remains fundamentally strong and can rely on solid domestic demand to tide over some of the external wobbles. We expect the recovery to continue after the current setback.”

That’s in line with the Bundesbank’s projections for a return to growth in the third quarter. The central bank predicts the German economy will expand 1.9 percent this year and 2 percent in 2015.

A worker prepares the interior of a vehicle as it passes along the production line at the Renault SA automobile plant in Valladolid, Spain. German carmaker Opel said last month that its market share in Spain was the strongest since 2006 in the first half.