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Eurozone recession fears reignite as growth stalls

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Eurozone recession fears reignite as growth stalls

Eurozone growth has stagnated in the second quarter, reigniting fears the region could slip into recession once more.

Eurozone gross domestic product (GDP) registered no growth in the second quarter, down from 0.2% in the first, worse even than the 0.1% rise investors had been expecting.

The news followed Germany reporting a shock 0.2% contraction in its economy in the second quarter, and France reporting no growth. Inflation for the eurozone was meanwhile confirmed at just 0.4% for the second quarter.

European markets are now in positive territory, having fallen in the morning's trading on the news. The pan-European FTSEurofirst 300 index is up 0.3%, France’s CAC 40 is 0.3% higher while the German Dax has risen 0.4%. The FTSE 100 added 35 points, or 0.5%, to 6,690. 

Peter Vanden Houte, economist at ING, said the weak economic data would heap further pressure on the European Central Bank (ECB) to launch further stimulus action.

ECB president Mario Draghi in June cut interest rates and announced a €400 billion (£323 billion) programme to boost bank lending, but the central bank has so far shied away from outright money  printing.

‘The bottom line is that the ECB will have to maintain an extremely accommodative monetary policy, even if the US will see a first rate hike already in 2015,’ he said. ‘The bank will likely be pressured to undertake additional action if some of the downside risks materialise.’

He added that geopolitical risks meant a rebound in eurozone growth in the third quarter could not be relied upon. ‘That would have been our expectation if it weren’t for the geopolitical tensions that have injected uncertainty into the outlook,’ he said. ‘Today’s figures show that the upturn remains too weak to withstand external shocks, meaning that GDP growth will probably remain stuck in stop-and-go mode.’

On the FTSE 100, TUI Travel (TT) was the among the biggest risers, trading 2.5% higher at 370.9p after TUI AG, which owns 55% of the company, said full-year earnings could exceed its guidance as it reported an 83% jump in third quarter profits.

Property companies performed well. Land Securities (LAND) rose 2.2% to £10.89, Intu Properties (INTUP) traded 1.7% higher at 336.2p while British Land (BLND) rose 2.4% to 723.6p.

Miners continued to shed value on weak Chinese economic data. Rio Tinto (RIO) fell 1.5% to £33.71, Glencore (GLEN) traded 1.4% lower at 360.6p while BHP Billiton (BLT) dropped 0.9% to £20.21.

‘Mid cap’ stock Carillion (CLLN) rose 9.2% to 349.3p after the construction firm announced a 5% rise in pre-tax profits in the first half of the year and sweetened its takeover offer for rival Balfour Beatty (BALF).

Carillion has offered an extra cash dividend of 8.5p per share to shareholders and said it continued ‘to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty and is therefore continuing to consider its position’.

However, that offer was swiftly dismissed by the board of Balfour Beatty, which said it had ‘serious reservations as to the achievability of the stated synergy number and believes that it creates unacceptable operational and financial risks’. Balfour Beatty rose 1.7% higher to 240.6p.

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