Euro Area GDP Q2 2021

Euro Area: GDP rebounds strongly in Q2 amid easing lockdowns

July 30, 2021

The economy grew a seasonally-adjusted 2.0% over the previous quarter in Q2, contrasting Q1’s 0.3% contraction and beating market expectations of a softer expansion. Compared with the same quarter of the previous year, seasonally-adjusted GDP jumped 13.7% in Q2, contrasting the 1.3% decline recorded in Q1, although the reading was flattered by a favorable base effect.

The quarterly increase came amid supportive fiscal and monetary stances, and as Covid-19 containment measures were eased throughout the currency union due to accelerating vaccination campaigns. This supported business activity, especially in the services sector, and household spending. In terms of individual countries, Spain’s economy expanded 2.8% over the previous quarter, Italy’s GDP increased 2.7%, Germany’s economy expanded 1.5% and output in France rose 0.9%.

Overall this year, the Euro area economy will grow thanks to the gradual easing of restrictions both in the region and further afield, the disbursement of EU recovery funds, and unleashed pent-up demand amid expansionary fiscal and monetary policies. However, weaker public finances, the spread of new Covid-19 variants and banks’ bad loans pose downside risks.

Commenting on the short-term outlook, Bert Colijn, senior Eurozone economist at ING, stated:

“Looking ahead at Q3, we would note that the Delta variant is causing some delays in the easing of restrictions and that supply chain problems continue to weigh on manufacturing production. Still, we expect growth to come in very strong—currently pencilled in at 2% quarter-on-quarter—as domestic and foreign demand remain very robust. The first July surveys confirm this picture of soaring demand with sentiment indicators reaching all-time highs. Despite all of the greening efforts, the Eurozone economy continues to perform like a diesel engine: It takes a while to get going but don't underestimate it once it’s picked up steam.”

More comprehensive results for Q2 are scheduled to be released on 17 August.

The economy is seen expanding 5.3% in 2021, which is down 0.2 percentage points from last month’s forecast. In 2022, GDP is seen increasing 2.9%.

Author: Massimo Bassetti, Senior Economist

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Euro Area GDP Chart

Euro Area GDP Q2  2021 0

Note: Quarter-on-quarter changes of seasonally-adjusted GDP and year-on-year variation in %.
Source: Eurostat.

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