The eurozone economy expanded at a faster-than-expected pace in the second quarter, reinforcing expectations for further European Central Bank interest rate hikes. Barclays estimates euro area GDP grew 0.45% quarter-on-quarter, marginally above the flash estimate of 0.44% and consistent with broader economic resilience.
France’s growth stagnated in Q2, with GDP revised to flat at 0.0% from an initial 0.2% estimate, despite a 2.9% rebound in exports driven by aeronautical demand. Germany’s economy grew 0.3%, up from the prior 0.2% estimate, with exports rising 2.0% and manufacturing value added increasing 0.9%, supported by chemicals and electrical equipment sectors.
Economic sentiment improved across the bloc. The European Commission’s Economic Sentiment Indicator rose 1.3 points to 98.4, while Germany’s Ifo Business Climate Index climbed 2.1 points to 88.8, signaling cautious optimism among businesses.
Inflation pressures remain uneven but persistent. France’s headline inflation accelerated to 2.7% in August from 2.4%, while Spain’s jumped to 4.5% from 3.9%. Euro area HICP inflation tracked at 3.39%, slightly below Barclays’ initial forecast of 3.44%. Producer price inflation in Spain surged to 9.2% in July from 7.0%, driven by electricity and gas costs, while France’s PPI rose to 4.3% from 3.6%.
Barclays now expects the ECB to deliver a final 25 basis point rate hike in September, lifting the deposit rate to a terminal level of 2.5%. The forecast aligns with signals from the ECB’s July meeting account, which indicated policymakers broadly anticipated at least one additional hike, with some open to immediate action.
ECB Executive Board member Isabel Schnabel, speaking to Bloomberg, warned that energy-related price pressures are becoming more persistent and are spreading beyond oil, citing the prolonged Middle East conflict and the eurozone’s stronger-than-expected resilience as upside inflation risks. She noted that while confidence has improved—particularly in manufacturing—ongoing inflation dynamics may necessitate further tightening to ensure price stability.
