Economy bounces back in the second quarter

GDP returns to growth in Q2: A second national accounts release confirmed that GDP rebounded in Q2, increasing 0.6% on a seasonally adjusted quarter-on-quarter basis after Q1’s 0.4% contraction. Unlike the first quarter, the reading exceeded the Euro area’s average GDP growth in the second quarter. On an annual basis, economic growth accelerated to 1.9% in Q2, following the previous quarter's 1.7% increase.

Both domestic and external demand improve: On the domestic front, private consumption—accounting for over two-thirds of GDP—marked a turnaround in Q2, rising 0.9% on a sequential basis after Q1’s 1.0% fall, as non-durable goods and services and durable goods returned to growth. Fixed investment also recovered, increasing 2.1% (Q1: -2.1% qoq s.a.), with across-the-board improvements led by transport equipment and construction. Finally, public spending growth stabilized at 0.4%. Externally, net exports remained a drag. However, the trade deficit narrowed and detracted less from overall GDP growth, as exports of goods and services rebounded—expanding 0.2% in Q2 (Q1: -0.4% qoq s.a.) on stronger merchandise shipments—and imports of goods and services growth moderated to 0.7% (Q1: +1.1% qoq s.a.).

GDP growth to steady in Q3: Our panelists expect GDP growth to stabilize in Q3 near Q2’s rate, supported by income tax cuts and pension bonuses. That said, economic growth should inch down in 2025 as a whole from 2024. The outlook is weighed down by weak domestic and external demand, as sluggish EU growth and the U.S. 15% tariff on European goods pose headwinds to investments and exports. The absorption of EU funds is key to monitor due to its impact on investment growth.

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