The euro zone economy grew faster than expected in the second quarter, supported by rising investment in artificial intelligence, government spending and stronger activity in several major economies despite the impact of the war in Iran and high energy costs.
Gross domestic product across the 21 countries using the euro increased 0.4 percent from the previous quarter, according to Eurostat data. The result exceeded the 0.2 percent growth forecast by economists in a Reuters poll and followed a 0.2 percent contraction in the first quarter.
Compared with the same period a year earlier, the euro zone economy expanded 1 percent, accelerating from annual growth of 0.3 percent in the previous quarter. The figure was also above the 0.5 percent rate economists had expected.
The stronger quarterly performance comes after a difficult period for the European economy, with high energy prices and geopolitical tensions weighing on businesses and consumers. Despite the improvement, economists expect growth for the full year to remain below 1 percent.
Germany, France and Italy each recorded quarterly growth of 0.2 percent. Spain continued to outperform several of the region’s larger economies, expanding 0.7 percent, slightly above the 0.6 percent forecast. The Netherlands grew 0.4 percent, twice the rate economists had anticipated.
Ireland recorded the strongest expansion among the countries highlighted in the data, with gross domestic product rising 3.9 percent. The performance was driven largely by multinational companies in sectors such as information technology and communications.
Ireland’s economic figures are highly volatile because of the large presence of multinational corporations. The country’s GDP contracted 7 percent in the previous quarter, meaning sharp movements in Irish output can have a noticeable impact on the overall euro zone figures.
Investment in artificial intelligence has become an increasingly important source of growth in Europe. Household spending has also remained stronger than expected, while Germany’s government has started increasing spending on defence and infrastructure.
The industrial sector, which has struggled for years with weak demand and high energy costs, also appears to have performed better than expected during the quarter. Some European producers may have benefited as higher costs and supply shortages affected competitors in Asia, encouraging buyers to source more goods from European companies.
Economists cautioned that some of these factors may not continue into the second half of the year. Orders brought forward because of concerns about future shortages could weaken later, while Ireland’s unusually strong growth may not be repeated.
Andrew Kenningham of Capital Economics said the euro zone could continue to withstand the energy shock from the Iran conflict, but warned that persistently high energy prices remain a risk.
Higher fuel, air travel and holiday costs could put further pressure on households, while inflation and interest rates may reduce consumer spending. As the conflict continues, economists expect the region’s recovery to face renewed challenges in the coming months.
