Weak GDP To Spur Downward ECB Growth Forecast Revisions (1/2)

The unexpected downward revision to Q2 Eurozone GDP (+0.1% Q/Q vs 0.3% in the first reading) has spurred some negative reassessments of the EZ growth trajectory going into next week's ECB decision (and updated staff projections which penciled in 0.3% for the quarter).

• Yesterday's final Q2 GDP release showed weak private domestic demand (private consumption flat for 2nd consecutive quarter, fixed investment +0.3% Q/Q same as the prior quarter), a negative contribution from net exports (-0.4pp vs +0.7pp in Q1, due to a contraction of exports vs higher imports).
• A +0.2% Q/Q performance in gov't consumption (-0.6% prior), and a +0.43pp contribution to GDP from inventory buildup, helped underpin the quarter's growth reading.
• Effectively Eurozone output has stagnated since Q3 2022, growing just 0.17% total in real terms over the last 3 quarters, with domestic demand down 0.7%.
• While we've seen some positive comments regarding the weakening of the eurozone labour market, the overarching factor is that productivity remains moribund. Employment grew 0.2% in Q2 (0.5% in Q1, 0.3% in Q4 '22), with hours worked likewise up 0.2% (0.9% in Q1, 0.2% in Q4 '22).
• In turn the ECB's calculation of Unit Labor Costs hit the highest since Q2 2020 at 6.5% (vs 6.0% prior and 4.7% in Q4 '22). While that is calculated per capita rather than per hour (which Eurostat will release in next week's quarterly Labour Force Survey), there's little doubt that stagflation is a reasonable description of the current state of affairs.

Percentage Point Contributions To Q/Q Eurozone GDPSource: Eurostat, MNI