The eurozone economy expanded by 0.45% quarter-on-quarter in the second quarter, according to Barclays’ estimate, matching the preliminary reading and driven primarily by external demand. Domestic demand remained subdued across the bloc, with growth figures varying by country. France’s GDP growth was revised down to flat at 0.0% after a 0.2% initial estimate, as a rebound in exports to 2.9% was offset by inventory drawdowns and weaker investment. Germany’s economy grew 0.3%, up from an earlier 0.2% estimate, supported by a 2.0% rise in exports and a 0.9% increase in industrial value-added, particularly in chemicals and electrical equipment.
Economic sentiment indicators improved in August. The European Commission’s Economic Sentiment Indicator rose by 1.3 points to 98.4, while Germany’s Ifo Business Climate Index advanced 2.1 points to 88.8. Barclays noted confidence gains across all major sectors, with industry reporting the most optimistic outlook. The data suggests a stabilization in business expectations after a prolonged period of uncertainty.
Inflation pressures remain a concern, though Barclays slightly trimmed its eurozone HICP inflation forecast for the 12 months to 3.39%, down from 3.44%. France’s year-on-year inflation climbed to 2.7% from 2.4%, while producer prices surged 4.3%. Spain’s inflation accelerated to 4.5% from 3.9%, with producer price inflation jumping to 9.2% in July, driven by elevated electricity and gas costs. Barclays warned that headline inflation is likely to rise sharply in August.
European Central Bank officials have signaled the need for further tightening. Executive Board member Isabel Schnabel told Bloomberg that rates may need to rise further, citing persistent energy-related price pressures and the resilience of the eurozone economy as upside risks to inflation. She noted that supply chain disruptions linked to the Middle East conflict and broader energy market tightness are prolonging price pressures beyond oil. The ECB’s July meeting minutes indicated that policymakers broadly anticipated at least one additional rate hike, with some favoring action as early as that meeting.
Barclays maintains its call for a final 25 basis point increase in September, which would lift the deposit facility rate to a terminal level of 2.5%. Traders have priced in a high probability of such a move, reflecting the balance between growth stabilization and persistent inflation risks.
