The eurozone economy grew slightly more than expected in the second quarter, with steady growth in France, Italy, and Spain offsetting another disappointing quarter in Germany.
Why it matters: Germany’s poor performance risks proving a drag on the region’s overall performance in the coming months, and the European Central Bank (ECB) faces a bind as it prepares for its next meeting in September.
The details:
- Overall growth was steady at 0.3 percent in the three months through June and at 0.6 percent compared to the second quarter of 2023.
- Spain posted the strongest quarterly growth at 0.8 percent, followed by France and Italy at 0.3 percent and 0.2 percent, respectively.
- Germany, the eurozone’s largest economy, contracted 0.1 percent quarter-on-quarter, disappointing hopes that it had finally left stagnation behind.
- German inflation edged up again in July to 2.6 percent, raising the prospect of prolonged stagflation.
Latest survey data suggests that other eurozone countries may not be able to compensate for Germany’s weakness much longer, with S&P’s composite purchasing managers’ index dropping to 50.1 in July from 50.8 in June.
What they’re saying:
- “The eurozone economy is quite like the water quality of the Seine,” said ING Global Head of Macro Carsten Brzeski, noting the poor water quality that led to the postponement of the men’s triathlon at the Paris Olympics.
- “The slight increase in German inflation not only highlights the stickiness of inflation but also suggests that a September rate cut is not a done deal yet,” Brzeski added.
The other side: UBS Global Wealth Management chief economist Paul Donovan stressed the importance of taking a longer view, noting that inflation is nine percentage points off its peak in Germany and seven points off in Spain.
What’s next: The ECB has acknowledged that the region’s muted recovery remains vulnerable to risks from any global slowdown or escalation in trade or geopolitical tensions, and the September meeting remains “wide open” despite heavy betting in financial markets on a cut.
Full story
The German economy is facing a period of uncertainty as exports declined unexpectedly in June. According to the Destatis Statistics Office, exports decreased by 3.4% in one month, reaching 127.7 billion euros. This drop of 4.5 billion euros compared to May has raised concerns about the possibility of a recession in Germany.
The decline in exports is particularly alarming as analysts had anticipated a 1.3% increase in June. The situation is further complicated by high energy costs and rising credit costs, which are impacting the competitiveness of German companies on the international market. Imports, on the other hand, saw a slight increase of 0.3%, reaching 107.3 billion euros.
However, this modest increase was not enough to offset the drop in exports, resulting in a reduced trade surplus of 20.4 billion euros, down from 25.3 billion in May. The German export industry, once the driving force of the country’s economy, has been struggling for the past two years. The slowdown in the American and Chinese economies, coupled with trade tensions, has contributed to this crisis.
Despite the challenges, there are some positive signs.
German exports raise recession concerns
In June, industrial production increased by 1.4%, exceeding expectations of a 0.8% rise.
Jens-Oliver Niklasch, an economist at LBBW, sees this increase as a “sign of life” in a struggling industry. The contraction of German exports has implications beyond its borders. As the main economic engine of Europe, Germany’s economic health directly impacts its neighbors and trading partners.
A recession in Germany could trigger a broader economic slowdown in Europe, affecting financial markets and investor confidence. Germany is at a critical economic juncture. The decline in exports and structural challenges raise questions about the future of its economy.
However, recent increases in industrial production indicate that there are signs of recovery, even if they are fragile. The global economy is interconnected, and Germany’s challenges highlight the importance of adaptability and innovation in overcoming crises. By remaining flexible in the face of change, it is possible to find opportunities even in the most difficult times.
- Politico.”Eurozone economy grows faster than expected in Q2″.
- Bloomberg.”Euro Zone’s Big Growth Laggard Has a Lot of Cheery Consumers”.
- CoinTribune.”Economy: Is Germany on the Brink of a Recession?”.