GDP reading: GDP growth waned to 0.2% on a seasonally adjusted quarter-on-quarter basis in the second quarter from 0.3% in the first quarter. The reading was slightly below the flash estimate of 0.3%. On an annual basis, economic growth improved to 0.6% in Q2 compared to the previous period’s 0.5% increase, marking the best result since Q1 2023.
Drivers: Domestically, private consumption contracted 0.1% in Q2 (Q1: +0.3% s.a. qoq), marking the worst result since Q4 2022. Moreover, fixed investment contracted 2.2% in Q2 (Q1: -1.8% s.a. qoq), marking the worst reading in four years, as the economy felt the pinch of a prolonged period of tight monetary policy. That said, government consumption improved to a 0.6% increase in Q2 (Q1: +0.1% s.a. qoq).
On the external front, exports of goods and services growth edged up to 1.4% seasonally adjusted quarter on quarter in the second quarter (Q1: +1.1% s.a. qoq), which marked the best reading since Q2 2022, supported by healthy tourism activity in the periphery. That said, imports of goods and services rebounded, growing 0.5% in Q2 (Q1: -0.6% s.a. qoq).
Looking at specific countries, the German economy swung into contraction, while France and Italy grew less than in Q1. That said, Spain matched its Q1 rapid pace of expansion, and the Netherlands posted a strong rebound.
GDP outlook: Shifting to H2, our panelists expect GDP growth to broadly match H1’s pace. Private consumption and fixed investment should gain some traction, supported by the widely anticipated ECB cuts in the coming months. That said, growth in exports is expected to weaken. Spain should remain the fastest-growing large economy, while Germany is set to remain a noticeable laggard despite expectations of a shallow rebound. Sustained malaise in Germany’s industrial sector clouds the outlook.
Panelist insight: Nomura analysts commented on the outlook:
“The strong risk of a German recession and weakness in France will be a material drag on euro area GDP growth in Q3. However, we think the periphery will outperform, and tourism, in particular, will play an important role in keeping euro area GDP growth from contracting in Q3.”
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