Eurozone GDP growth in the second quarter exceeded expectations, maintaining the 0.3% quarter-on-quarter pace seen in the first quarter. After stagnation throughout 2023, this is a relief and signals that the economy is cautiously beginning to recover. Unemployment is low, inflation is more moderate, and the economy is definitely in better shape than it was, say, a year ago. Still, questions remain about where the economy will go from here, and recent data does not give much confidence that the eurozone economy is accelerating further.
Differences within the euro area remain significant. Spain remained the eurozone’s growth engine, growing by 0.8% sequentially, while France also looked healthier than expected with 0.3% growth in the second quarter, but this was mainly due to one-off export effects. be. Italy’s growth rate slowed slightly to 0.2%, while Germany’s GDP remained conspicuously negative at -0.1%. Germany remains in a fragile position in the post-pandemic economy, but the rest of the situation is not great either. If we exclude Spain, the economy will continue to grow at a lackluster pace.
Looking to the future, there is not much to be happy about. The underlying trend is weakening. Eurozone PMI fell in June and July, showing that the trend from the beginning of the summer was weakening. The July ESI released today was broadly stable, but there was a notable decline in service sentiment (down from 6.2 to 4.8). Companies have become increasingly pessimistic about business conditions in recent months, and are even more pessimistic about the outlook for the coming months. The third quarter is not off to a strong start as orders continue to be weak and manufacturing remains weak.
The eurozone economy is much like the water quality of the Seine. Some days it may seem okay, but overall it’s always bad enough to worry about. For the European Central Bank, this means interest rate cuts remain on the table, as domestic demand is unlikely to cause a significant boost to inflation.
