The euro area’s economy expanded by 0.4% in the second quarter, beating expectations of 0.2%, even though expensive energy and the conflict with Iran were expected to weigh on activity. Annual growth in the 21-country bloc reached 1.0%, according to Eurostat data released on Thursday.
Economists polled by Reuters had predicted year-on-year growth of 0.5%, so the latest reading exceeded forecasts by a wide margin. The 360-million-strong currency union is still expanding much slower than the United States, where GDP growth is likely to surpass 2% this year, helped in part by heavy private-sector spending on artificial intelligence.
Corporate investment in AI has also surged in Europe, government spending has been supportive, and household consumption held up reasonably well. At the beginning of the quarter, many analysts expected the start of a strong recovery after a turbulent year, but high energy costs dimmed that picture and most forecasters still see full-year growth below 1% – under the bloc’s already modest potential.
Signs of resilience in jobs and industry
Unemployment remained at 6.3% in June, defying expectations of an increase. The economic sentiment indicator, also published on Thursday, improved more than expected, lifted by better confidence in industry and services. Germany has been slowly raising its long-delayed defence and infrastructure spending, adding another source of support.
Industry, which has struggled for years, coped surprisingly well with expensive energy. In the past, high power costs were a constant drag on factories; this time manufacturing seems to have contributed to growth rather than holding it back.
Country data and temporary boosts
Germany, France and Italy each expanded by 0.2% quarter on quarter. Spain grew by 0.7%, above the 0.6% expected, while the Netherlands recorded 0.4% – double the consensus. Ireland posted a 3.9% quarterly increase, driven by international IT and communications companies based there for tax reasons.
Some of these gains may be temporary. High energy costs and shortages in Asian supply chains have pushed some buyers toward European companies, and orders may have been pulled forward because customers feared product shortages later in the year. The Irish surge and the industrial rebound could fade once these one-offs disappear.
– The recent escalation of the war in the Middle East means it will probably take even longer before a final agreement between the US and Iran is reached – Jörg Krämer, an economist at Commerzbank, told Reuters.
– That will likely weaken the economic recovery in the second half of the year. Even so, Thursday’s strong data suggest Germany could grow by 1.0% this year instead of the 0.6% recorded earlier – Krämer added.
The third quarter is expected to be harder. The conflict is dragging on, and higher energy costs are slowly reaching consumers through petrol, air fares and holiday prices. Consumer confidence may decline as inflation reduces real incomes, while higher European Central Bank interest rates are putting additional pressure on households.
Źródło: WNP.PL, Fot. ilolab / Shutterstock
