GDP growth improves in Q2

GDP growth improved to 2.8% in seasonally adjusted annualized rate terms (SAAR) in the second quarter, from 1.4% in the first quarter. The reading beat market expectations and was likely the strongest in the G7, driven by accelerations in private spending, government spending, and private inventory investment. On an annual basis, economic growth gathered traction, accelerating to 3.1% in Q2, compared to the previous period's 2.9% expansion.

Private consumption increased 2.3% in the second quarter, which was above the first quarter's 1.5% expansion. Public consumption sped up to a 3.1% increase in Q2 (Q1: +1.8% SAAR). Meanwhile, fixed investment growth waned to 3.6% in Q2, following the 7.0% reading logged in the previous quarter. Exports of goods and services increased 2.0% on a seasonally adjusted quarterly basis in the second quarter, which was above the first quarter's 1.6% expansion. In addition, imports of goods and services growth sped up to 6.9% in Q2 (Q1: +6.1% SAAR). As a result, net trade subtracted from GDP in Q2.

On the outlook, ING’s James Knightley said: “Consumer spending is set to slow further in the second half of the year (weak real disposable income growth, reduced support from pandemic-era savings, rising loan delinquencies as the cost of credit bites harder and harder), while the investment climate will also be more challenging with firms looking more cautious at the outlook (weakening hiring and capex intentions, while slowing home sales points to more weakness in residential construction).” In a similar vein, Nomura analysts said: “Looking ahead, heightened uncertainty around the election will likely weigh on business investment. Also, we believe tighter financial conditions for households will likely constrain personal consumption. Potential home buyers will likely wait until mortgage rates come down substantially, which means residential investment will likely decline again in Q3. Overall, we expect real GDP growth to decelerate in H2. As for inventory investment, the pickup in Q2 was attributable to wholesalers as well as retail auto dealers, which seems to be temporary. However, if wholesalers and retailers start pre-emptive inventory building in anticipation of tariffs under Trump, that could create noise for GDP during H2 of this year.”

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