Europe's fragile economy put to test as Ukraine, Iraq sour mood

Sun Aug 10, 2014 5:04am EDT
 
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By John O'Donnell

FRANKFURT (Reuters) - Investors will gauge the strength of the euro zone's fragile economy this week as escalating conflicts in Ukraine and Iraq darken the mood globally.

In stark contrast to the United States and Britain, which are growing strongly, economic output in the euro bloc is likely to have all but ground to a halt in the three months to June. Its star economy, Germany, is losing momentum and Italy is sliding back into recession.

"The United States and the United Kingdom are going to be among the fastest-growing economies both this year and next," said James Knightley, an economist with ING. "In Europe, the situation seems to be going into reverse."

The growing sanctions fight between Russia and the West over Moscow's backing of rebels in Ukraine and U.S. air strikes to block Islamist militants in Iraq are also upsetting the markets.

On Thursday, the European Union announces economic output data for the 18 countries in the euro zone for the April-June quarter, and Germany will reveal its own gross domestic product for the same period.

By these yardsticks, neither Germany nor the wider euro zone are expected to see much, if any, improvement on the first three months of the year.

To compound matters, tit-for-tat sanctions between Moscow and the European Union and fears that Russia could even invade eastern Ukraine are already sapping business confidence and will eat into paltry economic growth later this year.

Not only does Moscow supply about a third of the European Union's gas needs, trade ties in other areas between Russia and Europe run deep.   Continued...

 
Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange August 8, 2014.      REUTERS/Amanda Andersen/Remote