GDP records best result in two years in the second quarter

GDP reading: Economic activity rebounded in Q2, growing 1.0% on a seasonally adjusted quarter-on-quarter basis, contrasting the 0.3% contraction logged in Q1 and marking a two-year high growth rate. The improvement beat the Euro area’s 0.3% rise thanks to upbeat goods exports and stronger public spending. On an annual basis, GDP also bounced back, increasing 0.8% in Q2, contrasting the previous quarter's 0.6% contraction and marking the best result since Q1 2023.

Drivers: On the domestic front, public spending rose by 1.0% in Q2 (Q1: 0.0% s.a. qoq). The uptick was due to rising expenditure on healthcare, public administration and the reception of asylum seekers. Less positively, household spending contracted 1.0% in Q2, marking the worst result since Q1 2021 (Q1: +0.5% s.a. qoq). Despite high wage growth exceeding inflation and therefore boosting purchasing power, households spent less as concerns about unemployment and the cost of living were on the rise in Q2, likely due to tax hikes on tobacco and housing rents. Moreover, fixed investment growth waned to 0.4% in Q2, following 0.8% in the previous quarter, capped by sluggish demand, still-elevated interest rates and a low number of construction permits. On the external front, exports of goods and services increased 1.3% on a seasonally adjusted quarterly basis in Q2, which contrasted Q1's 1.4% contraction. In addition, imports of goods and services rebounded, growing 0.4% in Q2 (Q1: -0.6% s.a. qoq). A second estimate will be released on 23 September.

GDP outlook: Looking ahead, GDP growth is forecast to average near H1 levels in H2 on firming industrial output, robust public spending and sustained foreign demand. Nevertheless, elevated inflation and interest rates will cap domestic activity, and household spending could remain sluggish. Over 2024 as a whole, the economy will improve from last year’s near-flat growth but it will remain weak overall on downbeat investment and exports. Stronger-than-expected household spending and EU demand are upside risks.

Panelist insight: ING analyst Marcel Klok commented on the outlook: “For now, we consider the weakness among consumers as largely temporary and expect consumption to gain traction, especially in the final quarter of the year. Combined with a further expanding public sector, continuing (but subdued) demand growth from foreign markets and a later turn in the inventory cycle, this should mean a return to close-to-potential growth in the second half of the year.”

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