GDP growth improves in Q2

Growth exceeds market expectations: According to a preliminary estimate, GDP growth improved to 0.3% on a seasonally adjusted quarter-on-quarter basis in the second quarter, from 0.1% in the first quarter. The reading surpassed both market expectations and the Euro area average. On an annual basis, economic growth edged up to 0.7% in Q2, compared to the previous quarter's 0.6% expansion.

Household spending rebound drives the improvement: Private spending increased 0.1% in the second quarter, contrasting the first quarter's 0.3% contraction. Households benefited from lower inflation, unemployment and interest rates. Meanwhile, public consumption matched Q1’s 0.2% expansion in Q2. Less positively, fixed investment slid at a more pronounced rate of 0.3% in Q2, following the 0.1% contraction recorded in the previous quarter. As a result, domestic demand excluding inventories made a null contribution after a detraction of 0.1 percentage points in Q1. Meanwhile, inventory buildup contributed 0.5 percentage points to growth, underpinning the overall expansion but softening from Q1’s 0.7 contribution. On the external front, exports of goods and services bounced back, growing 0.2% in Q2 (Q1: -1.1% s.a. qoq). In addition, imports of goods and services growth sped up to 0.8% in Q2 (Q1: +0.3% s.a. qoq), marking the strongest reading since Q2 2023. Consequently, net trade detracted 0.2 percentage points from the headline figure, improving from Q1’s minus 0.5 percentage points.

Momentum to cool ahead: Our Consensus is for GDP growth to cool in Q3 as support from inventory accumulation fades. Still, domestic activity should improve, aided by recent ECB monetary policy easing. In 2025 as a whole, the economy should expand less than in 2024, as fiscal restraint caps public spending and U.S. tariffs weigh on investment and exports.

Panelist insight: Analysts at the EIU commented: “Our 2025 full-year real GDP growth forecast remains unchanged at 0.6%, on the assumption that private consumption will start to strengthen as inflation remains low and the impact of monetary easing feeds through to bolster demand. This impact is likely to offset an expected slowing of stockbuilding.”

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