In a concerning trend for investors, German equities have closed in the negative territory for the fourth consecutive trading day as fresh economic data suggests a notable slowdown in the eurozone’s economic growth. The DAX index, a key barometer of the German stock market, recorded a decline of 1.48%, mirroring a broader regional retreat among European blue-chip indices, further highlighting the prevailing uncertainty in the market. Recent estimates from Eurostat reveal a quarter-on-quarter increase of only 0.2% in the euro area’s gross domestic product (GDP), which stands as a downward revision from an earlier estimate of 0.3% growth.
In the preceding first quarter of the year, the euro area's GDP had shown a slightly higher increase of 0.3%. This revised outlook is pivotal as it paints a clearer picture of economic performance within the region. Amidst these adjustments, BofA Global Research, renowned for its economic insights, has raised its 2024 GDP growth forecast for the eurozone to 0.7%, a decision influenced by prior revisions and a modest upside surprise observed during the second quarter.
The firm has also reaffirmed its expectations for the euro area’s GDP growth to reach 1.1% in 2025, followed by a projected 1.3% for the year 2026. Employment trends in the eurozone also indicate a slowdown. Eurostat’s findings reveal that the number of employed individuals in the region experienced a mere 0.2% increase in the second quarter, a decline from the 0.3% improvement witnessed during the first three months of 2024.
This slight growth in employment, while positive, signals underlying challenges in the job market that could influence consumer spending and overall economic vitality. Given the recent economic indicators, analysts at BofA Global Research maintain their projections for the European Central Bank (ECB) to implement rate cuts of 25 basis points during both its upcoming meetings in September and December.
“We anticipate the ECB will lower the deposit rate by 25 basis points next week,” analysts noted in their commentary. They emphasized that the narrowing of the interest rate corridor this month suggests that other policy rates should also adapt accordingly. As it stands, they view a 25 basis point cut as an almost certain outcome, based on the current flow of data and ECB communications. On a corporate level, Volkswagen's PowerCo subsidiary, responsible for its electric vehicle production, faces potential setbacks as it puts one of its two planned production lines on hold at its manufacturing plant located in Salzgitter, Germany.
Reports from Reuters, citing a spokesperson from the German carmaker’s works council, indicate that this decision is raising concerns among factory staff that the second production line could be eliminated altogether as part of cost-cutting measures amid decreasing demand for electric vehicles. The market reacted negatively to this news, and as trading concluded, Volkswagen shares fell by 3.42%..