GDP growth records best result since Q3 2022 in Q2

GDP reading: GDP growth sped up to 1.5% year on year in Q2 from 1.1% in Q1, marking the best result since Q3 2022. On a seasonally adjusted quarter-on-quarter basis, the economy contracted by 0.2% in Q2, deteriorating from the prior quarter’s 0.7% rise.

Household spending drove the acceleration: Looking at the details of the release, private consumption growth improved to 4.2% year on year in the second quarter (Q1: +3.6% yoy). Less positively, government spending fell at a steeper pace of 3.9% in Q2 (Q1: -2.7% yoy). Additionally, fixed investment slid by 15.4% in Q2 due to contractions in the volume of investment in construction, as well as machinery and equipment, (Q1: -6.9% yoy). On the external front, exports of goods and services fell at a more moderate pace of 1.8% year on year in Q2, which marked the best reading since Q2 2023 (Q1: -5.3% yoy). In addition, imports of goods and services contracted by 3.2% in Q2 (Q1: -9.2% yoy), marking the best performance in a year.

Private consumption to drive 2024 recovery: Looking ahead, the economy is likely accelerating in H2, supporting a rebound in 2024 as a whole thanks to recovering household spending. However, our panel expects public consumption, fixed investment and exports to all contract this year. Stronger-than-expected EU activity, potentially unblocked EU funds and increased nearshoring are upside risks.

Panelist insight: ING’s Peter Virovacz commented on the outlook: “Looking ahead, the main hope is that consumption momentum will continue to improve. However, this would require a more sustained and stronger recovery in consumer confidence, which is unlikely to be helped by inflation creeping above 5% by the end of the year. […] Overall, in light of today's detailed data, we maintain our previous forecast of 1.5% GDP growth this year. Hardly a sudden recovery but at least a sign that the economy is in the process of healing.”

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