Eurozone Economy Shrugs Off Energy Shock, Grows In Q2
- Q2 GDP smashes forecasts as annual growth hits 1.0% - Germany and Spain drive broad-based eurozone expansion - Geopolitics and wildfires cloud the outlook - Robust growth strengthens case for another ECB hike
The euro area economy appears to be weathering the energy shock better than expected, according to the first estimate of second-quarter GDP from Eurostat.
Preliminary figures showed the economy expanded 0.4% q/q in the three months to June, double the consensus forecast and rebounding from an upwardly revised flat reading in Q1 (previously reported as a 0.2% contraction).
On an annual basis, GDP grew 1.0% y/y, three-tenths above expectations and well ahead of the previous 0.3% pace.
HSBC economist Anja Sabine Heimann said the second quarter was always likely to be eventful, with an Irish rebound, the conflict in the Middle East and a looming tariff deadline all influencing the outlook. "Yet the eurozone outperformed expectations, recording its strongest quarterly expansion in more than a year," she said.
The fab four
Source: Macrobond, HSBC
A breakdown of the euro area's four largest economies painted a broadly encouraging picture. Germany grew 0.2% q/q, beating expectations after expanding 0.4% in Q1. France matched forecasts with growth of 0.2%, recovering from a 0.1% contraction in the previous quarter. Italy slowed by a tenth to 0.2% q/q, still exceeding consensus, while Spain once again outperformed its peers, growing 0.7% after 0.6% in Q1.
Ireland, whose GDP is typically more volatile due to the activities of multinational companies, rebounded sharply with growth of 3.9% q/q, following a 7.0% contraction in the first quarter.
Resilient performance
"The continued steady growth of the eurozone economy in Q2 shows that households and businesses have not pared back their spending significantly because of the Iran war," said Andrew Kenningham, Chief Europe Economist at Capital Economics. "We think the economy will continue growing steadily in the second half of the year."
Even so, analysts cautioned that geopolitical and trade risks remain elevated.
"The US-Iran deal stands on shaky ground, and an episode of intensified hostilities in mid-July showed how quickly conditions can deteriorate," said HSBC's Sabine Heimann. "Although the situation has since stabilised somewhat and Brent crude has retreated to around USD 92/bbl from its temporary spike above USD 100/bbl, risks remain."
She added that a further uncertainty had emerged heading into the third quarter. "A heatwave has scorched a near-record number of hectares in Spain and France. While the economic fallout is likely to remain regionally concentrated, the effects of extreme temperatures have already been felt across transport, tourism and parts of industry."
The stronger-than-expected growth figures are also likely to bolster the ECB's hawkish camp, reinforcing the case for one additional interest rate increase before the end of the year.
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- Q2 GDP smashes forecasts as annual growth hits 1.0%
- Germany and Spain drive broad-based eurozone expansion
- Geopolitics and wildfires cloud the outlook
- Robust growth strengthens case for another ECB hike
By Harry Daniels
LiveSquawk News
@HarryDaniels71
12:00 GMT | 30 July 2026
The euro area economy appears to be weathering the energy shock better than expected, according to the first estimate of second-quarter GDP from Eurostat.
Preliminary figures showed the economy expanded 0.4% q/q in the three months to June, double the consensus forecast and rebounding from an upwardly revised flat reading in Q1 (previously reported as a 0.2% contraction).
On an annual basis, GDP grew 1.0% y/y, three-tenths above expectations and well ahead of the previous 0.3% pace.
HSBC economist Anja Sabine Heimann said the second quarter was always likely to be eventful, with an Irish rebound, the conflict in the Middle East and a looming tariff deadline all influencing the outlook. "Yet the eurozone outperformed expectations, recording its strongest quarterly expansion in more than a year," she said.
A breakdown of the euro area's four largest economies painted a broadly encouraging picture. Germany grew 0.2% q/q, beating expectations after expanding 0.4% in Q1. France matched forecasts with growth of 0.2%, recovering from a 0.1% contraction in the previous quarter. Italy slowed by a tenth to 0.2% q/q, still exceeding consensus, while Spain once again outperformed its peers, growing 0.7% after 0.6% in Q1.
Ireland, whose GDP is typically more volatile due to the activities of multinational companies, rebounded sharply with growth of 3.9% q/q, following a 7.0% contraction in the first quarter.
"The continued steady growth of the eurozone economy in Q2 shows that households and businesses have not pared back their spending significantly because of the Iran war," said Andrew Kenningham, Chief Europe Economist at Capital Economics. "We think the economy will continue growing steadily in the second half of the year."
Even so, analysts cautioned that geopolitical and trade risks remain elevated.
"The US-Iran deal stands on shaky ground, and an episode of intensified hostilities in mid-July showed how quickly conditions can deteriorate," said HSBC's Sabine Heimann. "Although the situation has since stabilised somewhat and Brent crude has retreated to around USD 92/bbl from its temporary spike above USD 100/bbl, risks remain."
She added that a further uncertainty had emerged heading into the third quarter. "A heatwave has scorched a near-record number of hectares in Spain and France. While the economic fallout is likely to remain regionally concentrated, the effects of extreme temperatures have already been felt across transport, tourism and parts of industry."
The stronger-than-expected growth figures are also likely to bolster the ECB's hawkish camp, reinforcing the case for one additional interest rate increase before the end of the year.