Morning Market Brief: July 31, 2024

Diverging paths of growth emerge across Europe

A flash estimate from Eurostat showed that Europe’s economy expanded over the second quarter of 2024. After two straight quarters of no growth (0.0%) to end 2023, Europe’s economy has shown signs of stabilizing in 2024. Still, the economy faces several headwinds that could continue to weigh on economic growth, but that could keep the European Central Bank (ECB) on a path of lowering interest rates.

• Gross domestic product in Europe rose by 0.3% in the second quarter of 2024 over the previous quarter. This topped the 0.2% rate of growth expected by economists, according to a survey by Bloomberg. Europe’s economy has now seen two straight quarters of growth at the highest level since the third quarter of 2022.
• While Europe achieved an economic expansion in the quarter, results were uneven across countries. The economies of Spain and France expanded over the quarter. Conversely, the German economy, the largest in Europe, contracted. Germany’s economy was weighed down by weak industrial sector performance amid tight financial conditions. Both domestic and global demand have been relatively soft.
• While Europe’s economy has shown signs of stabilizing, it still faces several challenges. Relatively modest domestic and global demand continue to weigh on the economy. Despite the ECB beginning to lower interest rates, financial conditions remain tight, weighing on European consumers.
• This is reflected in consumer confidence readings. In July, consumer confidence improved compared to June, but it remains low amid so much economic uncertainty.

Europe’s economic conditions are much like other places around the world, such as Canada. Inflation is coming down, economic growth is soft but still expansionary, and central banks have begun lowering interest rates. The second-quarter expansion is likely to do little to change the direction of the ECB, with markets anticipating another rate cut at its September meeting.?

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