Economic activity in the eurozone held up well in the second quarter. GDP grew by 0.3% between April and June, Eurostat announced on Tuesday morning. While all the details are not yet known, “available information from national sources suggests that export growth was strong while domestic demand growth was moderate,” estimates Jack Allen-Reynolds, economist at Capital Economics. In short, it was external demand that drove activity, with household consumption remaining sluggish, contrary to what the European Central Bank had hoped. Indeed, the Frankfurt economists had expected that falling inflation and rising wages would allow consumption to rise this year.
Spain in the lead
The dynamism of the Spanish economy continues unabated, driving the eurozone. Spain’s GDP grew by 0.8% in the second quarter, thanks to tourism and domestic consumption.
France is also doing rather well, since the country recorded growth of 0.3% between April and June. With one caveat, however, activity has developed thanks to external demand, which has enabled exports to grow, and thanks to public consumption. With a deficit of more than 5 points of GDP, French growth remains driven by public spending. Households, for their part, have not consumed more. And companies have only very timidly resumed their investments.
Germany, on the other hand, remains mired in its difficulties. GDP fell by 0.1% in the second quarter. Industrial production in the eurozone’s largest economy continues to decline. “With the Chinese and US economies losing momentum, alongside renewed trade tensions, there is very little hope for a strong export-led recovery,” says Carsten Brzeski, economist at ING. “In addition, weak industrial orders, high inventory levels and precautionary savings are still weighing on the economy. Added to this are the increasing number of business insolvencies and individual companies announcing upcoming job restructurings.”
Coming deterioration
As business surveys of German industry and French services and industry deteriorated in July, it is possible that growth forecasts for the eurozone will be revised downwards in the coming months.
The possible return of Donald Trump to the White House and the trade war he intends to wage against China but also the Europeans could have significant effects on the Eurozone, whose growth remains sorted by exports. Goldman Sachs’ chief economist, Jan Hatzius, present in Sintra, Portugal, at a conference organized by the ECB, estimated that the customs duty increases planned by the Trump administration would cut Eurozone growth by one point of GDP in the first year. In other words, there will not be much left for the Eurozone.
