FXT Financial Focus (Asia-Pacific 09/08)Eurozone Q2 Growth Accelerates on Strong Exports

Eurostats third estimate released on September 7 showed that seasonally adjusted Eurozone GDP grew 0.6% quarter-on-quarter, revised up 0.2 percentage points from the August estimate, while annual growth was raised from 1.0% to 1.2%. EU GDP increased 0.7% quarterly and 1.4% annually, also revised up by 0.2 percentage points. After stagnating in Q1, the Eurozone economy clearly regained momentum in Q2.

Foreign trade was the main growth driver. Eurozone exports rose 3.4% quarter-on-quarter, reversing a 0.6% decline in Q1, while imports increased 1.5%. Net exports contributed around 0.9 percentage points to GDP, although inventory changes subtracted roughly 0.5 points. The strong export rebound points to improving external demand, but also highlights the economys continued dependence on overseas conditions.

Domestic demand recovered more gradually. Household consumption rose 0.4%, up from 0.1% in Q1, contributing around 0.2 percentage points to GDP. Government consumption increased 0.2%, while gross fixed capital formation fell 0.1%, indicating that business investment remains weak. The broader EU showed a similar pattern, with net exports providing the main support and inventories weighing on growth.

Growth remained uneven across member states. Spains GDP expanded 0.7% quarter-on-quarter, continuing to outperform major economies. Germany was revised up to 0.3%, Italy grew 0.2%, while France was revised down from 0.2% growth to stagnation. On an annual basis, Spain expanded 2.7%, Germany and Italy both grew 1.0%, and France only 0.5%, underscoring the uneven recovery among major economies.

Ireland saw the largest revision, with quarterly GDP growth raised sharply from 3.9% to 10.2%. Slovenia and Lithuania expanded 1.8% and 1.7%, respectively, while Austria contracted 0.1%. Ireland‘s figures are often highly volatile due to multinational corporate activity, meaning part of the Eurozone’s upward revision reflects this special factor. Germany and France therefore remain more important gauges of the underlying recovery.

Employment continued to expand modestly. Eurozone employment reached around 176.4 million in Q2, rising 0.1% quarter-on-quarter and 0.5% year-on-year, while total hours worked increased 0.1%. EU employment also grew 0.1% to around 221.4 million. Portugal recorded relatively strong employment growth, while Spain and Italy also gained. Germany declined 0.1% and France was broadly unchanged, suggesting companies remain cautious about hiring despite stronger GDP growth.

From FXTs perspective, the upward GDP revision confirms that the Eurozone has moved beyond its early-year stagnation, with stronger exports and improving consumption providing a firmer foundation for the second half. However, growth remains heavily reliant on net exports, while investment and employment are still subdued and major economies continue to diverge. The key questions are whether external demand remains resilient, inventory pressures ease, and Germany and France regain momentum. A broader recovery in consumption and business investment would make the expansion more sustainable.

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