Eurozone GDP Growth Surpasses Expectations

Economic growth in the eurozone outpaced expectations in the second quarter of 2024 despite Germany's surprising contraction, highlighting a mixed economic landscape across the bloc.

Eurozone Economic Performance

According to preliminary data from Eurostat released on Tuesday, the eurozone's gross domestic product (GDP) grew at an annualised rate of 0.3% in Q2 2024, maintaining the same growth rate as the first quarter and surpassing the anticipated 0.2% growth. This indicates a slightly faster-than-expected recovery for the eurozone. The overall European Union also saw a 0.3% growth rate in the second quarter, matching the pace of the first quarter.

Country-Specific Growth Highlights

Several member states showed notable economic performance in the second quarter of 2024. Ireland led with the highest quarterly increase at 1.2%, followed by Lithuania at 0.9% and Spain at 0.8%. Conversely, Latvia experienced the largestdecline at -1.1%, with Sweden and Hungary also seeing decreases of -0.8% and -0.2%, respectively.

Germany's Economic Contraction

Germany, the eurozone's largest economy, unexpectedly contracted by 0.1% on a quarterly basis in the second quarter of 2024. This decline reversed the 0.2% growth from the first quarter and fell short of forecasts for a 0.1% increase. The contraction was primarily due to significant drops in investment in equipment and buildings, as the industrial sector faced pressure from high interest rates.

Other Major Economies

  • France: Economic growth slightly exceeded expectations, with a 0.3% GDP increase in Q2 2024, consistent with the upwardly revised growth of the first quarter. A minor rebound in gross fixed capital formation and stable household consumption drove this.

  • Italy: The economy grew by 0.2% in Q2 2024, down from a 0.3% expansion in the first quarter, aligning with market expectations.

Economic Sentiment and Employment Expectations

The European Commission's business and consumer survey for July revealed that the Economic Sentiment Indicator (ESI) remained mostly stable in both the EU and the euro area. However, the Employment Expectations Indicator (EEI) saw a significant drop, falling below its long-term average for the first time since April 2021.

Sector-Specific Confidence

  • Industry Confidence: Remained nearly unchanged, with improved production expectations offset by a decrease in current order book levels.

  • Services Sentiment: Decreased to 4.8 in July 2024, below market expectations and down from the previous month.

  • Consumer Confidence: Slightly rose to -13 in July 2024, the highest level since February 2022.

  • Retail Trade Confidence: Fell significantly due to declining assessments of past and future business conditions.

  • Construction Confidence: Improved slightly.

Market Reactions

Following the data release, the euro remained steady at 1.0830 against the US dollar. Yields on European sovereign bonds also stayed stable, with the Bund trading at a 2.37% yield. Shorter-dated Schatz yields dropped by five basis points to 2.60%, potentially indicating increased expectations of a more accommodative stance by the European Central Bank due to Germany's disappointing economic performance.

European equities showed a modest recovery, with the broader Euro STOXX 50 index rising by 0.5%. The French CAC 40 and German DAX both increased by 0.4%, while major equity indices in Italy and Spain edged up by 0.3%.

Top performers among the Euro STOXX 50 constituents included ASML Holding and Deutsche Bank. Conversely, Phillips, Iberdrola, and Enel lagged.

The eurozone's overall economic performance in Q2 2024 reflects a complex and varied landscape. While the bloc exceeded growth expectations, Germany's contraction underscores ongoing challenges. Economic sentiment remains cautiously optimistic, but declining employment expectations highlight potential future hurdles. As the eurozone navigates these mixed signals, the focus will be on stabilising growth and addressing sector-specific issues to sustain recovery momentum.

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