Germany's economy shrank in the second quarter, but across the wider eurozone, gross domestic product (GDP) increased.
Eurozone real GDP in the three months to June increased by 0.3% compared to the first quarter of 2024, surpassing economists' expectations of 0.2% growth, following GDP growth of 0.3% in the first quarter.
This is below the 0.4% growth forecast by the European Central Bank in June.
Year-over-year GDP growth for the eurozone edged up to 0.6% from 0.5% in Q1, aligning with the consensus estimate of 0.6%.
Yet the German economy shrank by 0.1%, which was worse than the forecast growth of 0.1%.
The decline in Germany's GDP was more than offset by increases in GDP of 0.3% in France, 0.2% in Italy, and 0.8% in Spain.
Among the smaller economies, GDP fell by 1.1% in Latvia and stagnated in Austria, but it rose by 0.1% in Portugal, 0.2% in Belgium, 0.9% in Lithuania, and by 1.2% in Ireland.
These were preliminary figures, which do not include an expenditure breakdown.
The sick man of Europe
Market analyst Kathleen Brooks at XTB pointed out that Germany’s economy has registered a negative growth rate for five quarters since the start of 2022.
"Germany is once again the sick man of Europe," she said.
Economist Melanie Debono at Pantheon Macroeconomics stated that details from France and Spain and messages in the Italian and German reports "are mixed; the former two suggest that both domestic demand and net trade pulled growth higher, while Germany’s release points to a drag from domestic demand and growth in Italy was apparently dragged down by net exports".
She said the weaker outcome than the ECB expected and the fall in the PMI in July "mean that the ECB’s assertion that September’s meeting is 'wide open' is starting to jar with reality, especially given signs from advance national data out earlier today that risks are tilted to the downside for the July HICP report tomorrow."
Pantheon is forecasting a rate cut from the ECB in both September and December, taking the deposit rate to 3.25% by year-end.
At ING, economist Bert Colijn agreed that for the ECB, the growth data means that the growth acceleration compared to 2023 should not be a hindrance to further rate cuts.
"The eurozone economy is quite like the water quality of the Seine: some days it may look okay but overall it’s poor enough to continuously worry about it," he said.
"For the European Central Bank, this means that rate cuts very much continue to be on the table as domestic demand is unlikely to cause much of an inflation push."