The latest statistics on the euro area economy point to the beginning of its recovery

The latest statistics on the eurozone economy indicate the beginning of its recovery after the slowdown caused by the Russian military operation in Ukraine. Despite the low performance of the leading index of industrial activity PMI in June, after the zero dynamics of GDP in the first quarter, in the second quarter the growth rate was 0.3%. Better than analysts’ expectations were the June data on industrial production in the euro area. However, we can’t talk about stable growth yet: optimism about further economic recovery is rather short-term, and in the future, according to ECB forecasts, growth will be hindered by a combination of weak domestic and external demand.

The GDP growth of the euro area countries in the second quarter of 2023 amounted to 0.3%, follows from the latest publications of Eurostat. It was zero in the first quarter after declining 0.1% in the fourth quarter of 2022. Compared to the second quarter of last year, the GDP of the euro area countries grew by 0.6% in April-June. Peak quarterly acceleration was shown by Ireland (3.3%), Lithuania (2.8%) and Slovenia (1.4%), the largest decline was Poland (minus 3.7%) and Sweden (minus 1.5%). In the leading economies of the EU – Germany and France – the dynamics were multidirectional: in Germany, growth rates were zero after declining by 0.1% in the first quarter, in France, GDP growth accelerated to 0.5% from 0.1% a quarter earlier.

Note that the final data will be published in early September. Almost all of yesterday’s (“second”) estimates coincided with Eurostat’s preliminary estimates (see “Kommersant” dated August 1), which were noticeably better than analysts’ expectations, due to poor data from leading indicators of the economic situation. Thus, the PMI index (calculated by S&P Global) remained in the negative zone in June, amounting to 49.9 points (a value above 50 points indicates an increase in activity, below – a decrease) – this is the minimum since January, which was explained by the impact on the economy of record growth rates. interest rates against the backdrop of counter-inflationary actions of the European Central Bank. However, the weak PMI compared to the actual release can also be explained by the incomplete consideration of the sentiment index in the military industry due to the specifics of its contracts.

Fresh data from Eurostat on industrial production also turned out to be better than forecasts. By May in June, the indicator rose by 0.5% (forecast – minus 0.1%) in the euro area countries and by 0.4% in the EU as a whole. Year on year, both in the euro area countries and in the European Union, the indicator remains in the red (by 1.2%), but significantly better than expected (minus 4.2%). Compared with May, the production of durable goods in the euro area decreased by 0.1%, in the EU – by 0.4%, the production of intermediate goods – by 0.9% and 0.8%, respectively. Ireland (13.1%), Denmark (6.3%) and Lithuania (3.2%) posted the largest MoM industrial output growth, followed by Sweden (minus 5.3%), Finland and Malta (minus 3.3%), as well as in Belgium (minus 3%). Year-on-year output grew stronger in Denmark (12.3%), Ireland (8.3%) and Slovakia (3.6%), fell – in Estonia (by 12.7%), Bulgaria (by 9.3% ) and Belgium (by 7.6%).

Inflation in the Eurozone, according to Eurostat data, continues to decline: in July it amounted to 5.3% against 5.5% in June. However, core inflation (excluding food and energy) was unchanged from the previous month at 5.5%. Although the slowdown in price growth indicates the possibility of a pause in the ECB’s rate hikes, optimistic estimates of economic growth in the coming months, on the contrary, may be a signal for further tightening of its policy, Trading economics believes. The head of the ECB, Christine Lagarde, after the next meeting, announced the need to orient the monetary policy to the incoming data (see Kommersant of July 28). In the regulator itself, sustainable growth in business activity is expected only after a more serious than now decrease in inflation (the target is 2%). The ECB’s medium-term forecasts were revised downward in July: while a deep recession is not expected, a combination of weak domestic and external demand could seriously slow down growth in the near future.

Christina Borovikova