The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service.

• In the second quarter of 2023, real GDP in the euro zone grew by 0.3% on a quarterly basis—the sharpest expansion since the second quarter of 2022—and by 0.6% on an annual basis, according to flash estimates. This followed quarterly growth of 0.1% in the first quarter. 

• There was a notable divergence in quarterly growth rates across the region. Among the largest economies, the German economy continued to stagnate. The Italian economy contracted by 0.3%, following a robust expansion of 0.6% in the first quarter, as the downturn in the manufacturing sector worsened. The French and Spanish economies grew by 0.5% and 0.4% respectively—the former supported by strong exports and the latter by recovering domestic demand. 

• Ireland was the top performer: after the economy contracted by 2.7% quarter on quarter in the first quarter, it expanded by 3.3% in the second quarter. Irish growth is prone to volatility due to the impact of balance-sheet movements of foreign multinational companies in the country. Latvia was the worst performer in the second quarter; this probably reflects volatile changes in firm inventories. The Austrian economy also contracted amid a deterioration in the country’s industrial production and business outlook. 

• We expect euro zone GDP to expand by 0.8% in full-year 2023. Slowing inflationary pressures, a record-low unemployment rate and a buoyant tourism sector will support economic growth in the remainder of 2023, offsetting some of the hit from high interest rates and subdued external demand. Headline inflation in the euro area slowed further to 5.3% in July, although here too there is significant divergence within the region. Meanwhile, core inflation (excluding energy and food prices) was unchanged at 5.5%, surpassing headline inflation and raising the prospect that the European Central Bank could tighten monetary policy further in September, after the 25-basis-point rate rise in July. This is not our core forecast, but there is a very high risk; should this transpire, it would present further headwinds to European growth into 2024.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.