August 14, 2014 / 9:05 AM / in 3 years

Euro zone growth grinds to a halt

3 Min Read

* Surprise halt casts shadows over recovery's prospects

* Germany, Italy contract, France stagnant

* Inflation confirmed at 5-year low in July, ECB vigilant


* For July inflation TABLE

BRUSSELS, Aug 14 (Reuters) - Euro zone's economy unexpectedly stalled in the second quarter of the year dragged down by shrinking growth in Germany and stagnant France, ringing alarm bells about the health of the bloc's economy bracing for impact of sanctions against Russia.

Economy of the 18 countries sharing showed no growth in the three months to June when compared with the first quarter when it was up 0.2 percent, data from the EU's statistics office Eurostat showed on Thursday.

Analysts polled by Reuters expected the 9.6 trillion euro economy to squeeze out a 0.1 percent quarterly expansion.

The worse-than-expected performance of one of the world's biggest economies is a warning ahead of the incoming quarter when European Union will feel hard impacts of sanction against Russia imposed in July over its involvement in Ukraine crisis.

When compared with the same period last year the euro zone's gross domestic product (GDP) grew as expected by 0.7 percent after a 0.9 percent rise at the beginning of the year.

On top of disappointing data from the bloc's two largest economies, the third largest Italy fell back into a technical recession in the second quarter in a sign Europe struggles to get the economy back on foots as reforms lag behind.

Positive news came from Spain where growth accelerated to 0.6 percent quarter-on-quarter in the three months to June, while the Netherlands bounced back to a quarterly growth of 0.5 percent after a 0.4 percent fall in the first quarter.

Portugal, which exited an international bailout earlier this year, saw economy expanding 0.6 percent on the quarter following a 0.6 percent contraction in the three months to March.

In a separate data release the Eurostat confirmed euro zone inflation fell in July to its lowest level since the height of the financial crisis nearly five years ago, keeping the European Central Bank vigilant about risks of a deflation.

Consumer prices in the euro rose by just 0.4 percent on the year in July, the weakest annual rise since October 2009 when prices fell by 0.1 percent, data showed.

Annual core inflation - which excludes energy, food, tobacco and alcohol costs - stood unchanged at 0.8 percent for the second month in a row. (Reporting by Martin Santa Editing by Jeremy Gaunt)

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