EUR/USD Eurozone Q2 GDP Grows More Strongly Than Anticipated
EUR/USD Eurozone Q2 GDP Grows More Strongly Than Anticipated
The euro area economy demonstrated steady growth in the second quarter, despite an unexpected contraction in Germany, according to official data released on Tuesday.
Gross domestic product (GDP) increased by 0.3 percent in the three months ending in June, matching the growth rate of the first quarter, as reported in the preliminary flash estimate from Eurostat. This growth rate slightly surpassed economists’ expectations of 0.2 percent.
On a year-over-year basis, economic growth increased to 0.6 percent, compared to an anticipated 0.5 percent for the second quarter. The next set of estimates is scheduled for release on August 14.
Germany lagged behind other eurozone countries in terms of growth, while Spain remained a strong performer, driving growth within the currency bloc. France experienced faster-than-expected growth, while Italy’s growth slowed, influenced by negative contributions from net foreign trade.
France’s economy expanded by 0.3 percent in the second quarter, supported by investment and exports. Spain achieved a robust growth rate of 0.8 percent, whereas Italy’s growth decelerated to 0.2 percent from 0.3 percent in the previous quarter.
Franziska Palmas, an economist at Capital Economics, indicated that surveys suggest a potential slowdown ahead. According to Palmas, the composite Purchasing Managers’ Index (PMI) aligns with the possibility of GDP stagnation in July. If this trend continues, third-quarter GDP might fall short of the already below-consensus forecast of 0.2 percent.
ING economist Bert Colijn observed that the recovery from a prolonged period of stagnation persisted into the second quarter, though signs of slowing are emerging. For the European Central Bank, this ongoing growth acceleration relative to 2023 should not impede further rate cuts, Colijn noted.
The euro area’s economic performance in the second quarter showed resilience, with the 0.3 percent GDP growth mirroring the first quarter’s expansion. This growth slightly outpaced the forecasted 0.2 percent, reflecting a modest but notable strength in the eurozone’s economic recovery. However, the disparity in performance among member countries highlighted varying dynamics within the region.
Germany’s unexpected contraction stands out as a significant deviation from the broader trend, suggesting underlying challenges in Europe’s largest economy. Germany’s slowdown contrasts sharply with the stronger performance seen in Spain, which continued to be a key driver of growth in the eurozone. Spain’s robust 0.8 percent growth is indicative of its continued economic momentum and resilience.
France, too, contributed positively with a 0.3 percent expansion, driven by increased investment and strong export performance. This result was better than anticipated, signaling underlying economic strength despite broader uncertainties. Conversely, Italy experienced a slowdown, with growth falling to 0.2 percent from the previous quarter’s 0.3 percent. The deceleration in Italy was influenced by negative contributions from net foreign trade, which impacted its overall economic performance.
Looking forward, economic forecasts suggest a potential slowdown in the coming months. Franziska Palmas from Capital Economics pointed out that current surveys, including the composite Purchasing Managers’ Index (PMI), indicate that GDP might stagnate in July. This trend could lead to a weaker-than-expected third quarter, particularly if the economic deceleration persists.
ING economist Bert Colijn highlighted that while the euro area is continuing its recovery from a prolonged stagnation, emerging signs of slowing growth are evident. For the European Central Bank (ECB), relative to 2023’s performance, the current growth acceleration should not hinder plans for further rate adjustments. The ECB’s monetary policy may need to accommodate these emerging trends to support continued economic stability and growth.
