After jumping 0.6% in the first three months of the year, economic activity in the eurozone slowed sharply in the second quarter, with growth of only 0.1%.
Contradictory forces have driven economic activity in recent months. On the one hand, lower inflation and the monetary easing orchestrated by the European Central Bank are positive factors for consumption and investment.
On the other hand, however, the trade war that began in April and its implications for industrial production and employment are prompting economic agents to exercise caution.
Different countries and impacts
These opposing forces are reflected in significant differences in economic momentum between eurozone countries. Spain, which is more dependent on tourism than on goods exports, continues to show strong growth (+0.7%).
In contrast, the European industrial champions, Germany and Italy, dependent on external markets, saw their GDP decline by 0.1% in the second quarter. France, the second largest economy in the eurozone, is in an intermediate position with economic activity up 0.3%.
First semester deviated from normal figures
To properly understand economic activity in the eurozone since 1 January, it is important to bear in mind the considerable impact of the trade war.
Growth in the first quarter was artificially boosted by overstocking in the United States ahead of the increase in customs duties. This boosted exports, industrial production and, consequently, GDP growth in the eurozone.
The opposite effect occurred in the second quarter, when trade tensions penalised transatlantic trade in goods.
Overall, since 1 January, economic activity in the eurozone has remained relatively dynamic. But there is no doubt that US tariffs of 15%, as accepted by the European Commission, will penalise European economies.
How to look into Europe
Investors are already looking ahead to economic developments in the coming quarters.
The second-quarter growth figure, therefore, had no impact on the financial markets. The euro remained stable at $1.15, and eurozone stock markets did not react.
We are staying away from eurozone equities as part of our portfolio strategy. However, several European equities remain attractive on an individual basis. See below our recommended portfolio:
