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 gross domestic product growth was non-existent between April and June at a quarterly pace, after falling sequentially by 0.4 and 0.1% over the previous two quarters, according to seasonal-corrected data published Friday.
These results came without the expectations of analysts polled by the “FactSet” institute, who were counting on growth in Germany reaching 0.3%.
Statistics office Destatis said household consumption expenditures stabilized in the second quarter of 2023 after a poor performance in the winter, while the industry was in a bleak situation.
However, the situation is better in two other European countries.
French growth reached 0.5% in the second quarter of this year, better than expectations, benefiting from exports that compensated for the decline in household consumption, according to what was announced by the National Institute for Statistics and Economic Studies.
In Spain, growth slowed slightly in the second quarter, but remained solid at 0.4%, thanks to strong household consumption, according to the National Institute of Statistics.
On Monday, the European Statistics Office releases its first estimate of the Eurozone’s growth.
Germany, which remains an exporting country par excellence, is now counting on household consumption, which is resisting thanks to a solid labor market, wages that have increased significantly, and a downward trend on the inflation front.
However, the industrial sectors, such as the crisis chemistry and construction, 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.
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 trend reverses in August and September.
The German economy may end the year with a negative result at the bottom of the Eurozone rankings.
The main economic institutes expect a decline estimated at between 0.2 and 0.4%, while the International Monetary Fund’s forecasts indicate -0.3%.
German Chancellor Olaf Scholz’s government still expects GDP to be 0.4%, but this April forecast may be lowered in the fall.
For its part, the Austrian Institute of Economic Research “Wifo” said on Friday that Austria witnessed a worse decline than Germany, with GDP declining by 0.4%, in parallel with the previous quarter, referring to a recession in the industrial sector and losses in the construction sector.
Outside the Eurozone, Swedish GDP fell by 1.5% 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.
While keeping the fight against inflation the main focus, the European Central Bank decided to raise the main interest rates by 0.25% for the ninth time in a row.
The central bank also opened the door to halting interest rate hikes in the coming months as higher borrowing costs weigh on economic activity.