Economic growth slows in the second quarter

GDP reading: GDP growth waned to 3.3% year on year in the second quarter from 3.9% in the first quarter. On a seasonally adjusted quarter-on-quarter basis, economic growth slowed to 0.8% in Q2 following the previous period's 1.0% increase.

Drivers: The deceleration was solely driven by a weaker performance of the external sector; while exports of goods and services fell at a milder pace of 1.3% year on year in the second quarter (Q1: -2.0% yoy), imports of goods and services growth sped up to 5.2% (Q1: +2.2% yoy). More positively, data for domestic subcomponents was upbeat across the board. Private consumption growth accelerated slightly to 6.1% year on year in the second quarter (Q1: +6.0% yoy), which marked the best reading since Q3 2022. Government spending growth, meanwhile, accelerated to a 4.0% increase in Q2 (Q1: +1.0% yoy). Additionally, fixed investment growth picked up to a three-year high of 12.9% in Q2, following the 10.8% expansion logged in the previous quarter.

GDP outlook: Our Consensus is for the economy to retain solid momentum in H2 as price pressures soften from H1 and the ECB delivers additional rate cuts. Looking at 2024 as a whole, the economy should expand at a quicker pace than last year thanks to EU funds and a rebound in exports. Stronger-than-expected tourism activity poses an upside risk.

Panelist insight: Alen Kovac, analyst at Erste Bank, commented on the outlook: “Private consumption looks set to keep an overall supportive tone owing to ongoing strong labor market factors, resilient consumer sentiment, and vivid consumer credit […]. As external demand goes, tourism is expectedly under the spotlight, and YTD developments are largely matching expectations of modest sector growth being mostly driven by pre-season and post-season performance.”

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