(MENAFN- AFP) Growth in the 18-country eurozone ground to a standstill in the second quarter, official data showed Thursday, dragged down by France and Germany and casting a cloud over recovery in the crisis-battered region.
Stagnation in the currency bloc, already threatened by deflation, fell short of analysts' forecast of 0.2 percent.
The figures will force governments to cut back their growth estimates for the rest of the year, putting budget deficit targets into jeopardy, and also clouding the outlook for growth of the global economy.
The unexpectedly low growth figure was mainly the result of a surprise 0.2-percent shrinkage in Germany, usually the reliable eurozone growth engine, and stagnation in an already fragile French economy.
"Strong growth figures in some of the former crisis countries and small Eastern member states were not enough to offset the slowdown in Germany ... hit by the 'Putin factor' as well as the reform laggards France and Italy," said Christian Schulz, economist at Berenberg Bank.
Italy has already reported contraction of 0.2 percent for the quarter, while Spain, in need of a boom after years of deep crisis, disappointed somewhat with growth of 0.6 percent.
Analysts expected that growth would accelerate later in the year, but with geopolitical tensions in Ukraine - the so-called Putin factor - enduring, there is now deep concern that a fragile recovery in the eurozone may be in danger.
"It now looks very likely that GDP (gross domestic product) growth for the whole of 2014 will remain below 1.0 percent," said analyst Peter Vanden Houte of ING Bank.
- Setback for France -
France, showed zero growth for the second quarter running, forcing the government to downgrade its outlook for the year by half on Thursday, to 0.5 percent instead of 1.0 percent.
French Finance Minister Michel Sapin said that "growth has broken down, in Europe and in France".
And he admitted that France would now overshoot its promise to the EU that its public deficit would be cut to 3.8 percent of output in 2014.
Analysts have warned for months that France, with the second-biggest economy in the eurozone, looks increasingly the weak link in a halting European recovery, as the government struggles in its efforts to push through reforms.
The strongest quarterly growth across the EU occurred mainly in the east, with Latvia showing growth of a full percentage point for the quarter and Hungary growing by 0.8 percent.
Britain, outside the eurozone where the central bank has enacted years of highly accommodative monetary policy, also expanded by 0.8 percent over the quarter.
- Temporary blip -
In Germany, at least, economists were confident that the second-quarter contraction would prove short-lived.
"The second-quarter setback reflects a combination of technical factors and external weakness, but not fundamental problems in the economy," Schulz said.
"Put simply, the first-quarter figure probably overstated underlying growth a bit, while the second-quarter decline understates it," he said.
The other cloud looming over the eurozone is low inflation, which Eurostat on Thursday confirmed slowed to 0.4 percent in July, the lowest level since late 2009 and way off the ECB's target of just under 2.0 percent.
Falling prices are raising concerns that the bloc may be entering a dangerous spiral of low growth and low demand that plagued Japan for a generation.
"In Japan in the 1990's, everything began with a financial crisis," economist Alexandre Delaigue of St. Cyr University outside Paris said.
"Then the country went into low inflation or deflation, sometimes a little growth, sometimes none, followed by accumulated deficits and a monetary policy that encouraged the status quo," he said.
On Thursday, the European Central Bank, which has been under immense pressure to engage looser monetary policy, suggested such fears are unwarranted.
In its latest survey, the ECB found that "a number of respondents argued that the trough of inflation has more or less been reached."
In Brussels, the European Trade Union Confederation said that austerity policies enacted across the eurozone were to blame for low growth.
"It's no use blaming the weather or the situation in the Ukraine – the simple fact is that Europe needs a change in economic policy," the grouping of European unions said.
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