Euro Area Economy Remains Robust Amid Rising Inflation

The European Central Bank (ECB) is likely to raise interest rates again in September as economic activity in the euro area remains robust. Barclays' strategists believe that headline inflation will rise sharply in August, prompting the ECB to act.

Euro area GDP growth was driven mainly by external demand, while domestic demand remained subdued. The bank estimates that euro area GDP growth was 0.45% quarter-on-quarter in the second quarter, broadly in line with the flash estimate of 0.44%. French GDP growth was revised down to 0.0%, while Germany's GDP growth was revised up to 0.3%.

Survey data also points to an improving picture, with the European Commission's Economic Sentiment Indicator rising and Germany's Ifo business climate index climbing. Barclays said confidence increased across all major sectors, particularly manufacturing, where firms reported a more optimistic outlook.