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Eurozone Economy Weaker Than Previously Estimated
September 3, 2024
The eurozone economy struggled more than previously estimated in the second quarter, putting the European Central Bank (ECB) in a more difficult position as it combats inflation.
The European Union’s statistics agency said that the combined gross domestic product of the economic bloc’s 20 member nations grew by just 0.2% in the months between April and June. That is down from a previous estimate of 0.3% growth.
That marks a slowdown from the first quarter and puts growth in the region well behind the growth the U.S. and U.K have seen this year. Annualized growth in the E.U. amounted to just 0.8% in the second quarter, while the U.S. economy grew at a 3% annualized rate.
The report showed that consumer demand slowed and investments fell sharply, suggesting that high interest rates are cooling demand. What limited growth the E.U. saw was driven primarily mainly by government spending and exports.
The downward revision in growth was driven primarily by data out of Ireland. Previously reported figures had shown a strong upturn in the Irish economy, but the new figures point to a sizable economic contraction instead. Data out of Ireland has been prone to sizable revisions in recent years. For tax purposes, a number of large U.S. pharmaceutical companies are based in Ireland, and the nation was the second-fastest growing in the world in 2022. when demand for drugs surged during the pandemic. It then contracted sharply last year as demand subsided.
Recent economic data points to continued weakness in the third quarter for the E.U., with Germany, traditionally the group’s economic powerhouse, threatening to slide into recession.
Slowing economic growth poses a challenge for ECB policymakers, which began cutting interest rates in June. Central bankers are widely expected to cut rates again when they meet next week, but it makes the scope and timing of future cuts less clear. Some ECB members feel that a soft landing still looks likely and that there is no need for urgent support, while others argue that the eurozone will be pushed into stagnation or contraction if interest rates do not come down at a rapid pace.
