Economic divergences widen yield spreads

Q2’s 1.0% quarterly rise in euro-zone GDP confirmed that the region as a whole performed well by international standards last quarter. But Q2’s growth surge was largely down to a huge 2.2% quarterly gain in Germany. Growth in the periphery was considerably weaker and recent news has added to evidence that the likes of Spain and Portugal could soon fall back into recession. This has exacerbated fears that weak growth and expensive banking support measures could push government debt in parts of the periphery up to astronomic levels and has helped push peripheral government bonds spreads higher.