Economy loses momentum in Q2

GDP reading: A second release confirmed that GDP rose 0.2% on a seasonally adjusted quarter-on-quarter basis in Q2, a less sharp expansion than Q1’s 0.3% but matching market expectations. On an annual basis, GDP logged a 0.9% expansion in Q2, surpassing the 0.6% increase registered in Q1 and marking the best result since Q1 2023.

Drivers: The quarterly moderation was broad-based: Growth in private consumption plus fixed investment weakened, while public spending and exports swung into decline. Looking at the details of the release, household spending growth inched down to 0.2% in the second quarter, which was below the first quarter's 0.3% expansion. Fixed investment also lost traction, posting a 0.3% expansion in Q2 (Q1: +0.5% s.a. qoq). Moreover, public spending contracted 0.5% in Q2, deteriorating from Q1’s flat reading. On the external front, exports of goods and services fell sharply by 1.5% on a seasonally adjusted quarterly basis in Q2, which contrasted Q1’s flat reading. Conversely, imports of goods and services contracted at a slower pace of 0.6% in Q2 (Q1: -2.7% s.a. qoq).

GDP outlook: Our panelists forecast GDP growth to hover near Q2’s relatively weak level through end-2024 as increased private spending growth plus rebounds in public spending and exports will likely be offset by the hit to fixed investment arising from tight financial conditions. Over 2024 as a whole, the economy is projected to expand at a similar pace to last year. Growth in fixed investment, public consumption and private spending will decline. However, stronger exports growth—driven by stronger Eurozone demand in the second half of the year—will offer support. The potential missed implementation of EU recovery fund investments poses a downside risk.

Panelist insight: Commenting on the outlook. ING’s Paolo Pizzoli stated: “In the third quarter, growth will remain very much a services story, with the tourism component as a driver, with some caveats. While the balance of payments data seems to confirm a very good performance in the international component of tourism demand, anecdotal evidence (data for July is not yet available) is much less clear on the domestic component. The setback in August consumer confidence also suggests some prudence.”

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