2024-07-30 13:37:00
Good news for Europe. Eurostat announced on Tuesday that the euro zone’s economic growth in the second quarter was higher than expected, with GDP increasing by 0.3% from the previous three months, confirming the rebound since January. In particular, analysts surveyed by Bloomberg and Factset on average expected economic growth to slow slightly to 0.2% in the April-June period.
In the first quarter, the eurozone’s GDP grew by 0.3%, breaking away from the stagnation (0%) in the second half of last year. For the entire EU, the growth in the second quarter also maintained the 0.3% growth rate achieved at the beginning of the year.
Germany is struggling
Germany is at the forefront of the euro zone’s vulnerable countries. The country’s gross domestic product fell 0.1% in the second quarter, the national statistics office said on Tuesday, a sign of a continued recession in Europe’s largest economy. Economic activity grew 0.2% in the first quarter of the year from the previous quarter.
The euro zone’s largest economy struggled through much of 2023, with its industrial sector in a deep recession due to weak export sales. However, demand has recovered in recent months, suggesting Germany’s economy may be starting to recover.
« German model suffers from Ukraine war and rising energy prices “,Comment gallery Christopher Dembik, Economist at Pictet AM. China’s economic slowdown is also a major negative factor for the German economy », he added.
Southern European GDP growth
In the case of Spain, economic growth remains high. According to provisional estimates released this Tuesday by the National Statistics Institute (INE), GDP grew by 0.8% in the second quarter, thanks to the dynamism of exports and strong household consumption. This target places Spain among the most dynamic economies in the euro area and is close to the expectations of the International Monetary Fund, which expects GDP to grow by 2.4%, and the Bank of Spain, which expects GDP to grow by 2.3%. %.
In addition, Portugal’s GDP grew by 0.1% in the second quarter compared with the previous quarter, and by 0.8% in the first three months. It should be reminded that in 2023, Portugal’s economic growth is 2.3%, which ranks among the top in the European Union, especially driven by exports. According to the latest forecasts released in mid-April by Brussels’ updated 2024-2028 stabilization plan, the growth rate should be 1.5% this year and 1.9% next year. The Portuguese central bank expects economic growth of 2% this year and 2.3% in 2025.
« Compared to the situation in the Eurozone, we see a reversal in growth dynamics, with southern European countries Spain and Portugal performing well. », Economist Comments.
High Deficit
As for France, GDP reached 0.3%, an increase higher than INSEE’s expectations. Economic activity was supported by a rebound in foreign trade and business investment.This growth forecast is also higher than INSEE’s forecast of 0.1% growth in the first quarter. The Bank of France is more optimistic, predicting an increase of 0.3%, which is in line with the actual growth level.
Italy’s gross domestic product (GDP) grew by 0.2% quarter-on-quarter in the second quarter, thanks to a good performance in the services sector, the National Institute of Statistics (Istat) announced on Tuesday. Growth for the current year is carried forward to 0.7%. The government of Giorgia Meroni lowered its full-year growth forecast in April, predicting GDP growth of 1%, and subsequently expected GDP growth of 1.2% in 2025.
But this good news on growth shouldn’t make us forget their huge deficits.” largeItaly’s growth is financed by a large budget deficit », Christopher Dembik analyzes this. As a result, the country’s public deficit will amount to 7.4% of GDP in 2023. In France, this figure reaches 5.5%.
So much so that the European Commission formally launched a procedure last Friday against seven EU countries, including France and Italy, for excessive public deficits. Other countries involved include Belgium, Hungary, Poland, Slovakia, Malta and Romania. Last year, all countries exceeded the public deficit limit of 3% of gross domestic product (GDP) stipulated in the Stability Pact.
Slower growth ahead
Overall, Europe’s performance is still far behind that of the United States and China, with the two giants growing at 0.7% in the second quarter, more than double that of the European Union.
In the Old Continent, the European Central Bank expects economic growth of 0.6% in 2024, compared with a forecast of 0.8% in December. The International Monetary Fund (IMF) on July 16 predicted that eurozone GDP would grow by 0.9%, compared with 2.6% in the United States and 5% in China.
But because the deficit is too high, We must expect growth to slow further in the second half of this year and especially in 2025 as restrictive budget policies take hold. ”, points out Christopher Dembik.
Added to this is the dependence of the euro area on growth being driven primarily by foreign trade, rather than by consumption and investment. Growth depends on possible headwinds internationally », designated economists, such as the US elections.
What is giving the European Central Bank a headache?
The very significant divergence between member states could also cause headaches for the European Central Bank (ECB), which must formulate monetary policy that suits all 20 countries that share the single currency. This raises the question of the next rate cut, as the guardian of the euro has not given any indication at this stage about the subsequent monetary policy decision. Will be based on data » Especially inflation and growth.
At its July meeting, the ECB decided not to cut rates further. The monetary institution cut interest rates by a quarter percentage point in early June for the first time in five years, maintaining the status quo. The Governing Council, chaired by Christine Lagarde, “is expected to continue to improve its policy rate in the coming months.” The key interest rate will be kept at a sufficiently restrictive level for as long as necessary », in order to achieve the medium-term 2% target, even a press release was designated at the end of the agency’s meeting.
However, analysts expect a fall in the future for September, Christopher Dembik assures: “ Objectively, the ECB rate cut was recorded almost in September, and growth differences are no longer the subject of monetary policy compared to the main target of monetary institutions – large inflation differences. If the date has not yet been set, the ECB is certain to cut interest rates for the second time this year.
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