Economic surprise: Eurozone GDP jumped 0.3% in second quarter beating all forecasts

06, Aug - NEWS

The eurozone economy is slowly but surely recovering from the pandemic and the effects of the war in Ukraine. While the beginning of the year marked the end of the technical recession and the restoration of dynamism in the eurozone, in the second quarter the GDP of the euro countries exceeded forecasts. It grew by 0.3% between April and June, matching the first quarter of the year and improving analysts' estimates.

Similar dynamics and performance were repeated across the EU as a whole. The bloc's economy grew by 0.3% in the second half of the year, after posting a rebound of the same magnitude in January-March. This is reflected in preliminary data released by the European statistical office Eurostat, which will be revised. The Spanish economy was once again one of the best performing among eurozone countries. It is the third fastest growing country in the single currency, behind Ireland and Lithuania. Spain's GDP grew by 0.8% in April and May. This compares with 0.8% at the beginning of 2024 and 0.7% at the end of 2023.

Eurozone GDP: Contrasts of growth and decline

The negative surprise was German GDP, which contracted by 0.1% in the second quarter. This fall came after an attempted recovery at the beginning of the year, when GDP grew by 0.2%, and after closing 2023 with a 0.4% drop in GDP. While forecasts for the German economy were more optimistic, the opposite was true for France and Spain. The French economy grew by 0.3% between April and June and maintained its momentum after expanding by 0.3% in the first quarter of 2024 and expanding by 0.4% in the final quarter of 2023.

Among the major eurozone economies, Italy indicates a slight slowdown in growth in the second half of the year. Italian GDP rebounded by 0.2%, slightly below the 0.3% recorded in the first quarter of the year. This is a positive figure compared to the end of last year. The country, led by Giorgia Meloni, ended the last quarter of 2023 with GDP growth of 0.1%. Among the countries for which data is available, Ireland posted the strongest growth between April and June, with GDP rising by 1.2% after growing by 0.7% in the first half of the year. However, the Irish economy experienced a 1.7% contraction in the third quarter of 2023 and another 1.5% fall in the fourth quarter of last year.

Lithuania is the second fastest growing economy. Its GDP grew by 0.9% in the second quarter of 2024, the same as in the first half of the year. This leaves behind a 0.2% GDP contraction in the fourth quarter of 2023 and a 0.1% contraction in the third quarter. The worst performer between April and June was Latvia, whose GDP contracted by 1.1% after growing by 0.8% in the first quarter. In second place was Sweden, whose GDP contracted by 0.8% in the second quarter after growing by 0.5% between January and March. It is followed on the list by Hungary, which, after beginning the year with 0.7% growth, contracted 0.2% in the second quarter.

Rate cuts and new fiscal measures

The economy is beginning to show signs of recovery and this is being reflected in the European Central Bank's monetary policy. Following the first cut in the cost of money last June, interest rates are now at 4.25%. Although two more rate cuts are expected this year, the next one is not expected until September at the earliest. Monetary policy aims to bring inflation back to the 2% target after the bloc faced an upward price spiral following the beginning of the Russia-Ukraine war and the ensuing energy price crisis.

In this context, it is worth recalling that the Eurogroup, the eurozone's economy and finance ministers meeting in Brussels this month, called for ‘contractionary’ fiscal policy next year. That call struck a tougher tone than the ‘slightly contractionary’ forecast that was announced in March. ‘Neutral’ fiscal policy, which he called for this year, is now behind him to begin 2025 with more adjustment than was forecast a few months ago. He calls for a ‘reduction in high deficit and debt levels’ at a time when countries are due to present their structural plans to the European Commission next September and their 2025 budget plans in October.