GDP growth accelerates in Q2

GDP growth surprises markets on the upside: GDP growth improved to 5.1% year on year in Q2 from 4.9% in Q1, reaching the joint-highest rate since Q2 2023 and surpassing market expectations of a deceleration. The expansion was also in line with the average recorded over the last three years.

Domestic demand drives momentum: Domestically, private consumption—representing over 50% of economic activity—increased 5.0% in Q2 for the third consecutive quarter. Moreover, public consumption fell at a milder rate of 0.3% in Q2 (Q1: -1.4% yoy), as the President shifted parts of the budget to social spending. Finally, growth in fixed investment jumped to 7.0% in Q2 (Q1: +2.1% yoy), marking the highest expansion since Q2 2021, fueled by public infrastructure and machinery outlays. On the external front, exports of goods and services surged by 10.7% year on year in the second quarter, marking the best reading since Q1 2023 (Q1: +6.5% yoy). Order frontloading in anticipation of higher U.S. tariffs from Q3 fueled the uptick. However, imports of goods and services growth—which detracts from GDP—sped up to 11.6% in Q2 (Q1: +4.2% yoy).

GDP growth set to slow by end-2025: Our Consensus is for annual GDP growth to moderate in the coming quarters. Export growth is likely to ease, curbed by higher U.S. tariffs from August and the fading effect of order frontloading. That said, public stimulus should provide some tailwinds to economic momentum. Downside risks include a weaker-than-expected trade sector driven by escalating trade tensions and a slower global economy. Meanwhile, progressive monetary easing could lead to higher-than-expected growth in private consumption and investment.

Panelist insight: Nomura’s Nabila Amani and Euben Paracuelles noted: “Taking into account the Q2? outturn, we revise up our full-year 2025 GDP growth forecast slightly to 4.8% y-o-y from 4.7%, still softening from 5.0% in 2024. Our revised forecast nonetheless pencils in H2 GDP growth slowing to 4.7% from 5.0% in H1. We expect household spending to still be held back by weak consumer sentiment and low commodity prices but also, importantly, weakening labor market conditions and other more structural factors.”

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