Growth Reported in Eurozone and US Economies

Confidence appears to be returning to the marketplace with both the Eurozone and the US moving out of recession in Q2 together with 2.5% growth reported in the US. Emerging markets (EM’s) on the other hand appear to be slowing down, largely due to reduced consumption in China which has had a corresponding effect on the EM counties who rely on providing natural resources to the Chinese economy.

Growth in the US economy is the most significant event with 2.5% growth reported in the second quarter. Growth in the US is often associated with a follow through effect to the rest of the world. The Federal Reserve indicated that it would taper its Quantitative easing programme as a result of this improvement in economic conditions. The Fed is expected to begin the winding down of its $85 billion bond purchase stimulus package towards the end of 2013.

The Eurozone on the other hand shows a different story. The economy grew at a rate of 0.3% in the second quarter. This was driven predominantly by growth in Germany (0.7%) and France (0.5%), whilst all the other major Eurozone economies shrunk slightly. This suggests that the Eurozone economy is still fragile and is being propped up by its stronger members in Germany and France. Weak economies such as Spain and Greece may well require a bail out later in the year which qould send the Eurozone spiralling back into recession.

The UK is also showing signs of economic recovery with the construction industry returning to growth in Q2. The UK economy is expected to grow by 1% in Q3 according to the Grant Thornton 2013 Business Confidence Monitor. However, this growth is fuelled by ultra low interest rates and the government’s new Home Buy Scheme which has propped up house prices. This could result in the UK being significantly exposed to a rise in interest rates and will forestall any real recovery for years to come. Nevertheless, over the short term we would expect the economy to continue to “recover” with Mark Carney’s promise of record low interest rates through to the next election in 2015.