Euro Area Q2 GDP growth remains positive despite a harsh slowdown

In Q1 Euro Area GDP growth reached +0.1% QoQ and +1.4% YoY ( chart 1 ) . It slowed down by 0.5pp compared with Q1 (but Ireland remained a strong contribut or with an exceptional quarterly growth of 7.4% QoQ in Q1). The outcome is above our and consensus expectations. Three member states recorded negative quarterly growth, Germany (-0.1%), Italy (-0.1%), and Ireland (-1%), while Spain registered the highest growth (+0,7%). At this stage, we have few details by component, except for France and Spain (see below). According to the figures in these two countries, total domestic demand has been the main driver of growth during Q2, while external trade played a negative role during the quarter. In the coming quarters, we believe that several opposing forces will be at play. We expect domestic demand to remain solid, thanks to the stabilization of inflation close to the ECB's 2% target. Additionally, we believe that monetary and financial conditions will continue to ease. Finally, the new trade agreement between the EU and the US, will at least reduce uncertainties regarding the global trade environment. However, higher trade tariffs on EU exports to the US are expected to have a negative impact on many export sectors. Some sectors, such as the automotive industry, will benefit from lower tariffs, while others, such as the chemical industry, will face new tariffs. The overall outcome might still be somewhat mixed for the Euro Area economy. All in all, we maintain our GDP growth forecast of 1.2% YoY in 2025 and 2026 .