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Today’s GDP data could be revised, but for now it shows the eurozone economy was more resilient than expected.

The last quarter was tough for Europe, as inflation soared, energy costs for industry spiraled, and the Russian invasion of Ukraine continued to disrupt supply chains and create geopolitical uncertainty.

Eurozone beats forecasts with 0.7% growth

Just in: the eurozone economy expanded by 0.7% in the second quarter of the year, much stronger than the 0.2% which economists expected.

Growth across the euro area accelerated from the 0.5% growth recorded in Q1 (revised down from +0.6%), despite the economic shock from the Ukraine war.

Although Germany stagnated, a stronger performance from Spain, Italy and France helped to spur growth. Tourism and the reopening of businesses after pandemic lockdowns last winter helped.

Q2 GDP shows a stalled German economy but faster than expected growth for next 3 largest EZ economies:

German economy was flat after growing in Q1 at 0.2%

France grew by 0.5%

Italy’s GDP grew 1%

Spain’s economy grew 1.1% marked an acceleration from the 0.2% recorded in Q1

— Linda Yueh (@lindayueh) July 29, 2022

Eurostat adds:

Among the Member States for which data are available for the second quarter 2022, Sweden (+1.4%) recorded the highest increase compared to the previous quarter, followed by Spain (+1.1%) and Italy (+1.0%).

Declines were recorded in Latvia (-1.4%), in Lithuania (-0.4%) and in Portugal (-0.2%). The year on year growth rates were positive for all countries.

UK consumer credit growth surges as mortgage approvals fall

UK consumer credit growth has accelerated at the fastest rate in three years, as households struggle to cope as inflation hits a 40-year high.

People borrowed an additional £1.8bn in consumer credit in June, up from a £900m increase in May, the latest Bank of England statistics show.

Around £1bn extra went onto credit cards, with another £800m on car dealership finance, personal loans, and other consumer credit.

The annual growth rate for all consumer credit increased to 6.5% in June; the highest rate since May 2019, while credit card borrowing surged 12.5%, the highest rates since November 2005.

Economist Shaun Richards explains it’s a sign that the cost of living is hitting households:

A sign of the cost of living crisis I think…
Bank of England “Consumers borrowed an additional £1.8 billion in consumer credit, on net, of which £1.0 billion was new lending on credit cards.”

— Shaun Richards (@notayesmansecon) July 29, 2022

Tomer Aboody, director of property lender MT Finance, says:

Going forward, one would expect higher inflation and living costs to mean many will have to dip into savings in order to manage, with those who don’t have that buffer finding life increasingly difficult.’

The BoE also reports that approvals for house purchases, an indicator of future borrowing, fell to 63,700 in June, from 65,700 in May, below the 12-month pre-pandemic average.

A union representing Spanish-based pilots of low-cost airline easyJet say its members will go on strike for nine days in August to demand better working conditions, Reuters reports.

The SEPLA union is demanding that the airline reestablish pilots’ working conditions from before the COVID-19 pandemic and provide its pilots with a new multi-year contract deal.

A technical recession, incidentally, is two consecutive quarters of negative growth.

But as we saw yesterday when the United States’ GDP fell in Q2, some economists insist it’s too blunt a measure.

Paul Donovan of UBS is firmly in this camp, telling clients:

Yesterday, a group of people with English literature degrees tried to tell a group of people with economic degrees what the economy was doing. A group of people with economic degrees tried to teach a group of people with English literature degrees about the meaning of words. The recurring fight between journalists and economists over what “recession” means has begun.

Economists do not consider two quarters negative growth a recession.

Countries with falling populations are more likely to have negative growth, there is no recognition of capacity, and the labor market is ignored. The danger in using “recession” to describe the US economy today is that it invites fake comparisons to genuine recessions in the past.

The US may slump in the future, but currently it is in a slowdown.

At least one US President has recognised the definition before, though….

ING: German technical recession looks like a done deal

On an optimistic note, at least Germany avoided a contraction in the second quarter of the year.

But with high energy and commodity prices continue undermining purchasing power and profit margins, a technical recession in the second half looks like a done deal, writes Carsten Brzeski of ING:

The just released flash estimate of 2Q German GDP shows that the economy stagnated, from a significantly upwardly revised 0.8% quarter-on-quarter in the first quarter. On the year, the economy grew by 1.5%. GDP components will only be released at the end of August but according to available monthly data up to May and the statistical agency’s press release, public and private consumption supported economic activity, while construction and trade were a drag.

Supportive factors for the economy such as post-lockdown reopenings and filled order books have been losing momentum rapidly. Weaker global demand, supply chain frictions, and high inflation denting consumption are hitting the German economy. In fact, consumer confidence is already in clear recession territory and it looks as if the rest of the economy is quickly following suit.

The economy avoided contraction but the only positive element of today’s data is probably the upward revision of first quarter growth.

German economy stagnates

Newflash: Germany’s economy failed to grow in the last quarter, as Europe’s largest economy was hit by soaring prices, a trade slowdown, and supply chain disruption following the Ukraine war.

German GDP was unchanged in Q2 compared to Q1, a little worse than expected, and just 1.5% higher than a year ago.

Statistics body Destatis says weak trade hit growth.

The economy was mainly supported by private and government consumer spending, while the trade balance dampened economic growth.

The difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices and the war in Ukraine are clearly reflected in economic development.

Germany Econ. Stats Released:
German GDP (QoQ) (Q2)
Actual: 0.0%
Expected: 0.1%
Prior: 0.2%
Worse Than Expected

— TraderTalent (@TraderTalent) July 29, 2022

Germany Econ. Stats Released:
German GDP (YoY) (Q2)
Actual: 1.5%
Expected: 1.8%
Prior: 4.0%
Worse Than Expected

— TraderTalent (@TraderTalent) July 29, 2022

But….Germany’s growth in the first quarter has been revised to +0.8%, compared with 0.2% previously, so it started 2022 stronger than we thought.

Italy has smashed forecasts, bringing some relief as the country tries to navigate its political crisis amid the energy crunch.

The Italian economy grew by 1% in April-June, around three times faster than expected.

#Italy GDP came in much stronger than expected, with 1% growth vs a 0.3% forecast

France and Spain also came in much better than estimated. Europe is beating expectations by a distance

*ITALY PRELIM 2Q GDP RISES 1% Q/Q; EST. +0.3% via @markets

— Alessandro Speciale (@aspeciale) July 29, 2022

Spain GDP bounces 1.1% in the second quarter while inflation soars to 10.8% in July.

Tourism recovery and consumption drive GDP higher.

via Bloomberg

— Daniel Lacalle (@dlacalle_IA) July 29, 2022

Kalyeena Makortoff

In the City, shares in NatWest have soared 8% after the bank announced a special dividend for shareholders and raised its full-year guidance.

That payment means the UK government is in line for £1bn thanks to from its near-50% stake in the group, which also reports a dip in second quarter profits and “uncertainty” over the UK’s economic outlook.

NatWest revealed on Friday it was poised to issue dividends worth 20.3p a share, after reporting “strong growth” in lending and deposits across the business, thanks in part to rising interest rates that meant it could charge borrowers more for loans and mortgages.

Nearly half of the dividends – about £1bn – will be handed to the Treasury, which still owns 48% of the bank’s shares after its £46bn state bailout at the height of the 2008 banking crisis. More here.

France’s encouraging return to growth hasn’t squashed all fears of a recession, says Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

“The French economy has showed since of progress, growing 0.5% in the second quarter, reversing a previous contraction and beating market estimates of 0.2% growth. Growth has been supported by increased exports, however, the underlying picture is less positive.

Household consumption fell in the quarter, likely a result of increased fiscal prudence, while government spending also came off the boil. The overall data set is of course a relief but this has done little to completely erode recessionary fears.

Inflation kept climbing in Austria too.

Consumer prices have jumped by 9.2% in the last year (or 9.3% on an EU-harmonised basis), the highest in decades.

Statistics Austria director General Tobias Thomas says:

“In July 2022, life in Austria has become even more expensive: According to a first estimate, the inflation rate for July is 9.2 %. This is the highest value since March 1975.

While there are further price increases for household energy and in restaurants, the prices for food and fuel remain at a high level”

French inflation has hit a record high, taking the shine off this morning’s stronger-than-expected GDP figures.

French inflation climbed even further in July to 6.8%, on an EU-harmonised basis, up from June’s record high of 6.5%.

Inflation was driven up by the acceleration of service prices “linked to the summer period” says INSEE, along with higher price for food and manufactured goods.

Austria grew 0.5% in Q2

Austria’s economy continued to grow in the last quarter too.

Austrian GDP increased 0.5% in April-June, as it continued to recover from last winter’s national lockdown when it was battling a severe outbreak of Covid-19.

Spain beats forecasts with 1.1% growth

Next up… Spain.

And the Spanish economy has expanded by a faster-than-expected 1.1% in the second quarter of the year.

That’s up from 0.2% in the previous three months, and much faster than the 0.4% which economists expected.


— Breaking Market News ⚡️ (@financialjuice) July 29, 2022

Claus Vistesen, macroeconomist for Pantheon Macroeconomics, says France’s growth in Q2 was “solid”, but cautions that the boost from net trade and inventory-building could unwind later this year.

Solid French GDP growth in Q2, but it was all inventories and net trade. Significant scope for mean-reversion in both in H2, and I doubt that household spending will rebound much. The positive trend in services capex remains a real strong point.

— Claus Vistesen (@ClausVistesen) July 29, 2022

Tourism stands out as another strong point, both in terms of offsetting weakness in domestic consumption and of course, via net exports. Bodes well for the Spanish headline later.

— Claus Vistesen (@ClausVistesen) July 29, 2022

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