GDP growth records slowest increase in four years in Q2

GDP reading: The economy unexpectedly dodged a contraction in Q2, growing 0.1% on a seasonally adjusted quarter-on-quarter basis. That said, the print was below the downwardly revised 1.4% expansion in Q1 and marked the softest growth rate since Q2 2020. On an annual basis, GDP growth slowed notably to 2.5% in Q2 compared to the previous period's 5.3% increase, also marking the slowest expansion in four years.

Drivers: The quarterly downturn was broad-based, with private consumption, public spending, fixed investment and exports all weakening. Private consumption growth eased to 0.5% seasonally adjusted quarter-on-quarter in Q2 compared to a 0.7% expansion in Q1 on the heels of rising price pressures in the period. Similarly, government spending growth plummeted to 0.3% in Q2 (Q1: +3.7% s.a. qoq). Moreover, fixed investment contracted 4.1% in Q2 (Q1: +2.4% s.a. qoq), marking the worst result in four years. On the external front, exports of goods and services contracted 3.9% in Q2 (Q1: +2.8% s.a. qoq), marking the worst reading in four years. Conversely, imports of goods and services rebounded, growing 0.6% in Q2 (Q1: -3.6% s.a. qoq).

GDP outlook: Our Consensus is for the economy to shrink in Q3, and available data supports this view. Looking at 2024 as a whole, GDP growth should slow from 2023 as tighter financing conditions and higher inflation hamper domestic demand. An escalation of tensions in the Middle East is a downside risk.

Panelist insight: Muhammet Mercan, chief economist at ING, commented on the outlook: “For the second half of the year, there are signals of additional weakness in domestic demand […]. Tightening financial conditions, slowing real wage growth and a likely increase in the unemployment rate point to a further slowdown in economic activity in the period ahead.”

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