Euro Area Growth and Inflation Point to Another ECB Rate Hike
The euro area's economic activity has shown resilience in recent times, with growth driven mainly by external demand. According to Barclays, euro area GDP growth was estimated at 0.45% quarter-on-quarter in the second quarter, broadly in line with the flash estimate of 0.44%. The bank also revised down French GDP growth to 0.0% quarter-on-quarter from a preliminary 0.2%, citing exports rebounded strongly, up 2.9%, supported by demand for aeronautical products.
In Germany, second-quarter GDP growth was revised up to 0.3% from 0.2%, driven by external demand, with exports rising 2.0%. Manufacturing value added increased 0.9%, supported by chemicals and electrical equipment, while domestic demand remained subdued. The European Commission's Economic Sentiment Indicator rose 1.3 points to 98.4, while Germany's Ifo business climate index climbed 2.1 points to 88.8.
On the inflation side, national releases from France and Spain point to a further pickup in headline prices in August. France rose to 2.7% year-on-year from 2.4%, while Spain jumped to 4.5% from 3.9%. ECB Executive Board member Isabel Schnabel warned that energy-related price pressures 'are becoming more persistent and increasingly extending beyond oil.'
With headline inflation set to rise sharply in August, European Central Bank (ECB) communication is consistent with a further rate hike in September, Barclays said. The bank continues to expect a final 25 basis point hike in September, which would take the deposit rate to a terminal level of 2.5%.