France and Spain were the engines of European economic growth in the second quarter of 2023, while Germany’s results disappointed with the annual recession knocking on the door of Europe’s largest economy.
German GDP growth was non-existent between April and June at a quarterly pace, after declining by 0.4 and 0.1 percent, respectively, during the previous two quarters, according to seasonally corrected data published Friday.
These results came without the expectations of analysts polled by the “FactSet” institute, who were counting on Germany’s growth to reach 0.3 percent.
Household consumption expenditures “stabilised in the second quarter of 2023 after a poor performance in the winter,” said the statistics bureau Destatis, while the industry is in a bleak situation.
However, the situation is better in France and Spain, as the growth of the former reached 0.5 percent in the second quarter of this year, which is better than expectations, benefiting from exports that compensated for the decline in household consumption, according to data from the National Institute for Statistics and Economic Studies.
In Spain, growth slowed slightly in the second quarter but remained at 0.4 percent, thanks to strong household consumption, according to data from the National Institute of Statistics.
On Monday, the European Statistics Office releases a preliminary estimate of the eurozone’s growth.
The weak link
Germany, which remains an exporting country par excellence, is now counting on household consumption, which appears in good condition, thanks to a solid labor market, wages that have increased significantly, and a downward trend on the inflation front.
However, the industrial and construction sectors failed to increase their production, despite the decline in supply difficulties and benefiting from large orders.
Likewise, the high cost of financing curbed domestic demand, while a decline in external demand led to a slowdown in the industry.
“If the chemical and automotive industries weaken together, this will lead to a real industrial recession,” said economist Sebastien Dolien, of the IMC Institute.
And the “Capital Economics” advisory company confirmed that “Germany remains the weak link” in Europe.
While Germany’s GDP has emerged from its recession over the winter with two consecutive quarters of decline, this relief may be short-lived.
The purchasing managers’ index in July, which recorded a decline, leads to the expectation of a new decline in GDP in the third quarter, unless the data improves in August and September.
deteriorating prospects
The German economy may end the year with a negative result at the bottom of the Euro-Zone rankings.
Major economic institutes expect a decline of between 0.2 and 0.4 percent, while the International Monetary Fund forecasts a contraction of 0.3 percent.
The government of German Chancellor Olaf Scholz still expects GDP to grow by 0.4 percent, but this April forecast may be lowered in the fall.
For its part, the Wifo Institute said on Friday that Austria’s economy witnessed a worse decline than Germany, with GDP declining by 0.4 percent, in parallel with the previous quarter, referring to a “stagnation in the industrial sector” and “losses in the construction sector.”
Outside the Eurozone, Swedish GDP fell by 1.5 percent in the second quarter, compared to the previous quarter, which is a much lower performance than expected.
The eurozone as a whole may experience greater difficulties in the second half of the year.
European Central Bank President Christine Lagarde said Thursday that the economic prospects for the eurozone have “deteriorated”.
And while keeping the fight against inflation the main focus, the European Central Bank decided to raise the main interest rates by 25 basis points, for the ninth time in a row.
The central bank also opened the door to stopping raising interest rates in the coming months, while the higher cost of borrowing weighs on economic activity.
2023-07-28 13:22:02
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