Euro-zone barely grows after export downturn adds pressure

The euro-area economy barely grew in the second quarter as new data showing a dismal performance for exports forced a downward revision in overall growth numbers for the region.

Gross domestic product rose only 0.1% in the three months through June, compared with a prior increase measured at 0.3% — an outcome that had surprised to the upside when first published in late July. Economists had anticipated that the reading would be repeated in fuller data, according to the median estimate in a Bloomberg survey. 

The report on Thursday will provide European Central Bank policymakers with harder evidence of the weakness taking hold in the euro-zone economy, a week before they prepare to decide whether another interest-rate increase is warranted to tame inflation. 

There was a worry at the last ECB meeting in July that stagflation may be threatening to take hold — a prospect that the new numbers may make more ominous. 

The remainder of the year looks similarly bleak, with PMI data signaling private-sector activity in contraction and surveys pointing to further anemic expansion of just 0.1% in the current quarter. Germany’s industrial production fell in July, a separate report showed on Thursday. 

The revision also raises the prospect that the ECB’s previous 0.9% growth projection for the year may be shifted downwards in new forecasts also due on Sept. 14.

What Bloomberg Economics Says...

“Surveys increasingly signal weakness in the euro-area economy and we anticipate the ECB projections will show near stagnation over the second half of 2023, possibly even a modest recession. That would lead to some substantial downward revisions to annual growth for 2023 and 2024. Some of the change will likely be deemed structural, leaving little or no scope for upward revisions to growth later in the forecast.”

—David Powell and Maeva Cousin. For full ECB preview, click here

The data confirm how China-led weakness in global demand is hurting exporters badly enough to be weighing down the region as a whole. Exports declined 0.7% from the previous quarter, the Eurostat data show.

Both Germany, the euro area’s biggest economy, and Italy — its third-largest — are suffering likely recessions in manufacturing at present. The latter country even experienced an overall GDP contraction during the second quarter.