GDP growth improves in the second quarter

Economic growth strengthens in Q2: GDP growth accelerated to 3.4% year on year in the second quarter, from 2.9% in the first quarter, remaining one of the fastest in the Euro area and beating market expectations. On a quarter-on-quarter seasonally adjusted basis, economic growth accelerated to 1.2% in Q2, up from 0.4% in Q1, marking the best result since Q4 2023.

Households and investors drive the improvement: Private consumption increased 4.0% year on year in the second quarter, up from the first quarter's 1.7% expansion, supported by softer price pressures, sturdier wage growth and a lower unemployment rate. Moreover, fixed investment growth sped up to 5.2% in Q2, following the 4.5% expansion in the previous quarter, likely supported by the ongoing ECB monetary policy easing cycle. Less positively, government consumption growth was the slowest since Q1 2025, expanding 2.4% (Q1: +5.8% yoy). On the external front, exports of goods and services growth softened to 1.6% in Q2 (Q1: +6.0% yoy), amid heightened global trade frictions. Meanwhile, imports of goods and services decelerated to 3.3% in Q2 (Q1: +8.8% yoy), marking the worst reading since Q1 2024.

Momentum to moderate in H2: Our panelists expect the economy to lose some steam in the coming quarters and in 2025 as a whole vs 2024, as domestic demand cools due to a high base effect and slowing wage growth. Still, momentum will remain upbeat and the economy will once again be among the fastest-growing in the Euro area, supported by healthy activity in the tourism sector. Slower-than-anticipated absorption of EU funds and softer-than-expected EU demand are downside risks.

Panelist insight: Analysts at the EIU commented on the outlook: “Real GDP growth is forecast to moderate in 2025 to a still-firm 3% (well above a projected EU average of 1.3%). Domestic demand will remain the driving force—supported by solid real income growth, lower interest rates, mild fiscal stimulus and rising capital investment—but not to the same extent as in 2024.”

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