GDP growth declines in Q2

Euro area slows but stays afloat in Q2: According to a preliminary reading, GDP growth waned to 0.1% on a seasonally adjusted quarter-on-quarter basis in the second quarter, down from 0.6% in the first quarter. The reading marked the softest growth since Q4 2023, but narrowly exceeded market expectations of stagnation and indicates that momentum was resilient after Q1’s export frontloading boost. On an annual basis, economic growth ebbed to 1.4% in Q2 from the previous quarter's 1.5% increase.

Germany and Italy drive the slowdown: Among key Euro area economies, Germany swung into contraction due to lower investment in both machinery and equipment and in construction. Moreover, Italy shrank due to a deterioration in net exports. Meanwhile, the volatile Irish economy contracted as the boost from frontloading to the U.S. faded. On the flip side, the French and Spanish economies accelerated thanks to stronger momentum in private spending.

Economic growth to moderate ahead: Following Q2’s stronger-than-expected results, several panelists upgraded their 2025 GDP growth projections. The economy is set to expand at a faster pace in 2025 than in 2024, as lower interest rates and inflation bolster private consumption and fixed investment. That said, momentum is still expected to soften in H2 relative to H1, shifting from the boost of export frontloading to the drag of 15% U.S. tariffs. Still, greater clarity over U.S.-EU trade should reduce business uncertainty and support confidence among investors and exporters.

Panelist insight: ING’s Bert Colijn commented: “Looking ahead, expect swings in trade to continue to influence the economy. The eurozone economy is likely to perform sluggishly beneath the surface, but some signs of improvement can be seen. Uncertainty is likely easing somewhat now that a trade deal with the US has been struck. And already before that, businesses in services and manufacturing were showing renewed signs of optimism. For the short term, don’t expect miracles, but at the same time, there are new signs of life starting to emerge for the eurozone economy.”

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