EcoTV Week

Eurozone: a positive first half of the year to be followed by a negative second half?

09/09/2022

While the first half of the year was better than expected in the Eurozone, the outlook for the second half is negative. According to our forecasts, the Eurozone will not escape a contraction of its GDP in the coming quarters. The current unprecedented combination of shocks (inflationary, health, geopolitical, energy, climate, monetary) should overcome the resilience observed so far.

Transcript

Eurozone growth in the second quarter of 2022 came as a pleasant surprise: indeed, GDP rose sharply, whereas we had expected a decline. This positive result, which follows an already positive figure for the first quarter, is all the more striking given that US growth surprised negatively, once again, with a second straight contraction in GDP.

This positive growth figure for the Eurozone is partly due to a greater than expected support from the lifting of anti-Covid health restrictions. It triggered a marked rebound in activity in the food and accommodation sector and a good start to the tourist season. However, the wide disparity in growth rates within the Eurozone should also be noted. In our view, this weakens the aggregate result somewhat.

The Netherlands (far ahead), Ireland and Austria form the top three, followed by Italy, Spain and Greece. France is in an intermediary position, close to the Eurozone, as is often the case. Germany is doing better than expected but it is still at the bottom of the ranking with a barely positive growth rate. The three Baltic countries, Lithuania, Latvia and Estonia, are the most negative performers, in a more expected way, with a fairly sharp decline in their GDP.

In terms of the growth breakdown, the message is also disparate. Household consumption has risen sharply in Germany, the Netherlands and even more in Italy and Spain, while consumption growth has been weak in France. Total investment fell in Germany, but rose strongly in the Netherlands, Italy and Spain and slightly in France. Net exports contributed positively to growth in France and the Netherlands but negatively in Germany, Italy and Spain. At the aggregate level of the Eurozone, growth was driven by a net increase in household consumption and investment, and a bit reduced by the slightly negative contribution of net exports.

The look in the rear-view mirror is therefore rather favorable, and that’s good news. This translates into a comfortable growth carry-over, slightly above 3%. But while the first half of the year was better than expected, the outlook for the second half is negative. According to our forecasts, the Eurozone will not escape a contraction of its GDP in the coming quarters.

The current unprecedented combination of shocks (inflationary, health, geopolitical, energy, climate, monetary) should overcome the resilience observed so far. We have early signs of this in the deterioration of confidence surveys. However, the recession should / could remain limited in scope thanks to the support of fiscal measures and as long as the labor market continues to perform strongly as it is now. Thank you for watching. Tune in again next week for a new edition of EcoTV Week.

THE EXPERT ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE