The euro zone economy expanded in the second quarter of this year as various governments tiptoed around their economic reopening, preliminary data has shown.

The euro zone economy grew by 2% in the three months through to the end of June, according to preliminary estimates published on Friday by Eurostat. The region contracted 0.3% in the first quarter and 0.6% in the final quarter of 2020 — two consecutive quarters of economic contraction are defined as a technical recession.

Compared with the same quarter a year ago, the latest GDP reading represents a 13.7% increase.

Portugal, Austria and Latvia registered the highest quarterly growth rates.

However, the economic outlook remains delicate. The highly transmissible Covid-19 delta variant has led to a surge of infections in recent weeks for many countries. Though the number of hospitalizations has not been severely impacted and the number of inoculations against the virus has gathered pace, it is thought some consumers will hold back from enjoying new liberties as Covid-19 cases continue to rise.

“Looking ahead, we maintain our view, as does the consensus, that the third quarter will be even better, as momentum carries over uninterrupted, but downside risks loom,” Claus Vistesen, chief Europe economist at Pantheon Macro, said in a note this week.

He noted that “new virus cases are now shooting higher — driven by the Delta variant — and evidence from the U.K. suggests that it is holding back economic activity.”

Stateside, the latest gross domestic product numbers came in at an annualized 6.5% for the second quarter, well below market expectations, but slightly higher than the previous three-month period.

Overall, the European Central Bank expects GDP in the euro zone to reach 4.6% by the end of the year, followed by 4.7% next year.

Inflation above 2%

In a separate data release, Eurostat said that annual inflation is projected to reach 2.2% in the euro zone this month. This would be up from 1.9% in June.

Market players and central bankers are highly focused on this set of data as they try to determine whether a recent surge in consumer prices is transitory or not. A sustained period of higher inflation would trigger reductions in monetary stimulus.

The ECB’s target is to support an inflation rate of 2%. The Frankfurt-based institution has said that inflation is expected to rise in the coming months, but that this will calm down again in the new year.

By Silvia Amaro

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