Eurozone’s Q2 economic growth lags behind expectations

The Eurozone’s economy is crawling slower than anyone wanted in Q2 2024. GDP went up by just 0.2%, missing the 0.3% Eurostat initially reported. Trade and government spending did their bit, but investment was a no-show, dragging down growth.

Private consumption, which was supposed to help the region recover, stayed weak. Even with inflation easing up, more income, and a solid job market, people just didn’t spend as much as expected.

Germany, the Eurozone’s biggest economy, is dragging everyone else down. Its output shrank in the second quarter, mainly because of weakness in the manufacturing sector, which has been struggling for a while. 

Industry data from July showed that production dropped more than expected. France is in the same boat, with its industry also struggling to stay above water.

This isn’t good news for the European Central Bank (ECB). They’re already on the hook to cut interest rates again soon. With things moving this slow, the ECB is under pressure to keep the region from sinking further. 

They’ve already cut rates once in June, and they’re likely to do it again next week, according to analysts. No one’s quite sure when to stop the cuts, though. Some officials think holding off too long will do more damage.

The unemployment rate in the Eurozone dropped to 6.4%, the lowest since the euro showed up. About 500,000 new jobs popped up in the first quarter of 2024.

And it looks like this trend might continue, helped by better wages and more confidence from consumers.

ECB headquarters in Frankfurt, Germany

Core inflation, which strips out stuff like energy and food, held steady at 2.9%. Services inflation? That’s sitting at 4.1%, which is still pretty high and making the ECB’s job a bit trickier. 

On the fiscal side, things are looking slightly better. The government budget deficit in the Eurozone is expected to shrink from 3.6% of GDP in 2023 to 3.1% in 2024. 

As they phase out energy and inflation support measures, they hope to get that number even lower in the next few years. But cutting those support measures means more pressure on the ECB.

While its dealing with its own set of issues, fellow central banks around the world are facing similar challenges.

Headquarters of the Federal Reserve in Washington, D.C.

In the U.S., the Federal Reserve has kept its interest rates at 5.25% to 5.50% following its latest meeting in September 2024. This is a much higher rate than the 4% seen a year ago.

Despite some signs of easing inflation—down to 3.2% from 4.1% earlier in the year—the Fed remains uncertain. Rate cuts are expected this month, but they’re actively waiting to see more evidence of sustained disinflation.

Across the Atlantic, the Bank of England is also treading carefully. It’s kept its policy rate at 5.25%, with inflation still hovering around 3.0%. 

The UK economy is expected to grow by 1.0% in 2024, driven by consumer spending and a recovery in business investment.

Over in Japan, the Bank of Japan (BoJ) is dealing with a different set of problems. It has stuck to its ultra-low interest rates, keeping its benchmark rate at -0.1% as of press time.

Bank of Japan’s headquarters in Tokyo

But Japan’s inflation rate has recently reached 2.5%, and there’s growing pressure on the BoJ to consider tightening its monetary policy and stay the course with rate hikes. But given Japan’s persistently weak economy, it’s a tough decision.

Meanwhile, the Bank of Canada has been more aggressive in cutting rates. It lowered its policy rate to 4.25% in September 2024, down from 4.50% in July. 

That is the third consecutive rate cut. The inflation rate dropped to 2.5% in July, a sharp decline from earlier in the year. The Bank of Canada might go for another rate cut in October, but like the ECB and others, they’re being cautious.