Consumption in Eurozone

Eurozone - Consumption

Growth halves in Q2, providing ammunition for ECB action

The Eurozone economy slowed in the second quarter of 2019, likely weighed on by a weak manufacturing sector and uncertainty. According to a preliminary estimate released by Eurostat, GDP increased a seasonally-adjusted 0.2% in Q2 from the previous quarter, halving from Q1’s 0.4% and matching FocusEconomics’ panelists expectations. Compared with the same quarter of the previous year, seasonally-adjusted GDP expanded 1.1% in Q2, a notch below Q1’s 1.2% increase and marking the slowest growth rate since Q4 2013.

The result confirms that the Eurozone economy is on track to slow notably this year, likely weighed on by a weak industrial sector and amid a less supportive global trade environment. While a full breakdown by components is not yet available, higher frequency data suggest a two-speed economy with healthy services sector activity somewhat offsetting weak manufacturing sector data. The manufacturing PMI recorded its worst quarter since early 2013 in Q2; however, the unemployment rate fell to a fresh over one-decade low in June. Moreover, the soft GDP print, combined with low inflation, will likely translate into stimulus action by the ECB at its September meeting to shore up the outlook.

Additional data released by national statistical institutes across the Eurozone was also downbeat. Italy’s economy stagnated in the second quarter; France’s economy lost steam on slumping household spending; and Spain’s almost lost momentum in the quarter, although its economy continued to outperform most of its peers nonetheless.

Commenting on the GDP release, Nomura’s research team elaborates:

“We forecast GDP growth recovering slowly towards trend later this year. However, there are several risks that add some uncertainty to our forecast. […] The further stimulus we expect the ECB to deliver in September should provide some support to the economy. However, we doubt monetary policy alone will be enough to resurrect euro area growth, particularly with the slowdown having been generated in no small part by external versus domestic demand.”

More comprehensive results for the second quarter are scheduled to be released on 14 August, 6 September and 21 October.

FocusEconomics Consensus Forecast panelists expect the Eurozone economy to expand 1.2% in 2019, which is unchanged from last month’s forecast. For 2020, panelists see the economy expanding 1.3%.