The global economy continued to expand moderately in the second quarter of 2024, albeit with regional differences. In China, flagging domestic demand dampened economic growth. In the euro area, the growth seen at the beginning of the year continued. However, there is no sign of a strong, broad-based upswing. By contrast, economic activity in the United States and the United Kingdom remained fairly buoyant. In Japan, real gross domestic product (GDP) expanded considerably after three weak quarters.

Global industrial activity continued to pick up in the second quarter, but the short-term outlook has recently deteriorated somewhat. Industrial output rose significantly, particularly in the United States and Japan. Vibrant output growth continued in the group of emerging market economies. The global industrial recovery thus broadened. The euro area remained a key exception. There, output continued to decline in the second quarter. Global trade increased in sync with global industrial output. According to the latest results of the survey among purchasing managers, however, the global industrial recovery may have recently stalled. Industrial output probably barely inched upwards in July, and new orders fell.

Many commodity prices declined given the slightly more muted outlook for industrial activity of late. Only European gas prices have risen markedly in the last weeks in the light of escalation in the war between Russia and Ukraine and in the Middle East. Prices for industrial commodities have fallen markedly since June. Crude oil prices also declined. In the first half of August, a barrel of Brent crude oil cost US$82 on average, and thus somewhat less than in May. Concerns about a possible slowdown in global economic activity likely counteracted price-supporting factors such as the ongoing cuts in production by OPEC and its partners and tensions in the Middle East. Despite the recent decline, most commodity prices still exceeded their previous year’s levels. This also held true of food commodity prices. The record-high global temperatures of the past 12 months are likely to have contributed to this (see supplementary information on the impact of seasonal temperature anomalies on global food commodity prices).

Disinflation in the advanced economies is continuing to progress at only a slow pace. Up to July, the year-on-year rate of consumer price inflation in that group of countries declined to 2.7%. Three months earlier, it had stood at 3.0%. Efforts to contain core inflation achieved similarly modest progress. The inflation rate excluding energy and food stood at 3.0% in July, compared with 3.3% in April. A near-term return to the price stability targets is not yet on the cards because of, in particular, continued lively wage growth in many places. In labour-intensive services, upward pressure on prices remained stubbornly high through the end of the reporting period. 1

The International Monetary Fund (IMF) also recently stressed risks to the further disinflation process. In the regular update of its World Economic Outlook in July, the IMF staff essentially confirmed their April economic picture. 2 The IMF left the global economic growth projection for the current year unchanged at 3.2%. For the coming year, it has projected similarly modest growth of the global economy. At the same time, the staff revised its inflation forecast for the advanced economies upwards somewhat for this year and next. In this group of countries, inflation is thus likely to remain slightly above 2% in 2025. The IMF also stressed that the risks to the price projection were tilted to the upside. It cited as the main risk factors, in addition to persistently strong wage growth, potentially disappointing productivity developments and an escalation of trade disputes.

The Chinese economy was unable to maintain the pace of growth it showed at the start of the year. According to the official estimate, in the second quarter seasonally adjusted real GDP growth halved to 0.7% compared with the previous quarter. At 4.7%, the annual rate was also markedly lower than before. This was mainly due to the subdued dynamics of private consumption. Retail sales in the second quarter were only 2.6% higher than a year earlier, and services consumption also probably continued to lose steam. Against this backdrop, the rise in consumer prices remained extremely subdued: the consumer price index (CPI) rose by just 0.3% year-on-year. The weakness in private consumption is also likely to be related to the severe housing market crisis, which has continued in recent months. The Chinese economy remained on a growth path despite the many pressures because, in particular, export business continued to flourish persistently. Thus, economic development in China has remained at two speeds of late.

China’s export economy is coming under increasing pressure. Its industry recently significantly expanded its production capacity for high-end goods. Given that domestic demand was rather sluggish as well, it made inroads into foreign markets and put pressure on established providers there. Several trading partners have accused China of giving its enterprises unfair competitive advantages through subsidies. Most recently, the USA and EU announced the rollout of additional tariffs on Chinese imports, including electric vehicles. China’s government rejected the criticism and intends to stay its industrial policy course. In order to boost domestic demand, it announced further economic policy stimulus in recent weeks. The central bank eased its monetary policy somewhat in July.

The strong economic upswing in India continued. In the first quarter, up to which national accounts are available, real GDP rose by just under 8% on the year. According to the latest indicators, the rapid expansion is likely to have continued and appears to have spread across large parts of the Indian economy. At 4.9% in the second quarter, consumer price inflation was almost as high as in the previous quarter. This meant that inflation remained in the upper range of the target corridor of the Reserve Bank of India, which left the key interest rate unchanged at 6.5%.

In Brazil, economic activity is likely to have lost momentum again in the second quarter. The Brazilian economy had gotten 2024 off to quite a good start: in the first quarter, real GDP rose by 0.8% on the quarter in seasonally adjusted terms. According to the available indicators, the pace appears to have slowed somewhat in the second quarter. Massive flooding in parts of the country, which temporarily led to severe economic disruptions, is likely to have been one of several factors. Average consumer price inflation over the second quarter dropped to 3.9%. It thus remained within the monetary policy target corridor. In May, the central bank reduced the policy rate by 25 basis points to 10.5%.

In Russia, the economy continued to expand strongly despite growing supply-side bottlenecks. According to data from Rosstat, real GDP rose by 4.0% year-on-year in the second quarter. The upswing in the Russian economy is being driven mainly by rising government spending, especially in armaments. Wages picked up very strongly as a result of increasing labour market bottlenecks – at last report, the unemployment rate was 2.5% in seasonally adjusted terms. This boosted private consumption, which further drove economic activity. All in all, there are mounting signs that the Russian economy is overheating. Consumer price inflation continued to accelerate in July to 9.1%. The central bank has therefore hiked its policy rate by 200 basis points to 18%.

The US economy remained in good shape in the second quarter. Real GDP grew by 0.7% on the quarter after seasonal adjustment after seeing even more modest growth in the first quarter. Domestic activity was the driving force behind the growth. Private households maintained their sizeable appetite for spending. In fact, enterprises actually increased their expenditure on machinery and equipment and on inventories relatively sharply. Government demand likewise picked up markedly. By contrast, the persistently unfavourable financing conditions in the construction sector made themselves felt. Commercial construction investment fell, as did investment in private residential construction. Imports increased significantly against the backdrop of buoyant domestic demand.

The US economy is likely to markedly lose momentum over the remainder of the year. Given the largely depleted pandemic-era excess savings, households are likely to be adjusting more strongly to moderate real income growth. Labour market utilisation, which had been very high, already began to decline from the beginning of the year. Enterprises advertised fewer vacancies, but at the same time it was increasingly easier for them to fill vacancies. The increased influx of workers from abroad is likely to have been a factor here. The solid employment growth that had occurred for a long time has recently weakened significantly, and the previously strong wage growth has also eased. Overall, the indicators suggest a moderation of economic activity. However, there are no signs of a hard landing.

The slowdown in wage growth is reducing enterprises’ cost pressures and is set to foster the continued process of disinflation. Between April and July, the year-on-year rate of consumer price inflation fell by 0.5 percentage point, but remained high at 2.9%. Core inflation (excluding energy and food) was even slightly above that. Against this backdrop, the Federal Reserve continued to refrain from lowering policy rates for the time being.

Japan’s economic output increased significantly in the second quarter. According to initial estimates, GDP grew by 0.8% in seasonally and price-adjusted terms following three weak quarters. Motor vehicle production, which had slumped in the first quarter due to a production stoppage at one manufacturer, 3 made good progress towards recovery, alongside a corresponding recovery in industrial production. Exports also rose somewhat. Private gross fixed capital formation increased markedly, and households increased their consumption expenditure considerably. Consumers benefited from the fact that this year’s high wage rounds took effect and that real wages recently rose significantly. Driven by the wage growth and the depreciation of the yen, which made imports more expensive, headline inflation remained high by Japanese standards. In June, consumer prices were up by 2.8% year-on-year. Excluding energy and food, this figure stood at 1.9%. In July the Bank of Japan therefore raised its policy rate, the target corridor of which had previously been between 0% and 0.1%, to 0.25%.

The British economy continued to expand vigorously in the spring. In the second quarter, economic output rose by 0.6% compared with the winter quarter in seasonally and price-adjusted terms. This was mainly due to the further increase in activity in the services sector. By contrast, construction activity once again fell somewhat. The still unfavourable financing conditions and unusually heavy rainfall at the beginning of the quarter made themselves felt. Manufacturing, too, was not able to capitalise on its strong previous quarter. However, consistent with the positive momentum in economic activity overall, the Composite Purchasing Managers’ Index remained clearly in expansionary territory until July. Consumer sentiment continued to improve, with real income increases in recent months likely to have played an important role. Consumer price inflation has barely changed recently. In July, the annual rate of the Harmonised Index of Consumer Prices (HICP) stood at 2.2%. At 3.3%, the core rate, which excludes energy and food, was still quite high. Nevertheless, in August the Bank of England cut its key interest rate by 25 basis points for the first time since March 2020 owing to the success of the disinflation process to date.

In Poland, the economic recovery strengthened in the second quarter. Industrial and service production rose significantly. On the expenditure side, the recovery in economic activity continues to be driven by the rise in private consumption, which is supported by the robust labour market situation and significant wage increases amidst a general subsiding of upward pressure on prices. Similar factors also boosted economic activity in the other central and eastern European EU Member States (see supplementary information “Fresh momentum for convergence in central and eastern Europe 20 years after EU accession?”). The unemployment rate rose only slightly in the second quarter and gross wages in the corporate sector rose by 11% on the year. The expiry of support measures is likely to have a temporary dampening effect. In April, the limited-time VAT exemption for basic foodstuffs (yet which had been extended once already) expired, leaving a clear, temporary mark on retail sales. In contrast to private consumption, investment is likely to have fallen once again. Construction output recently fell short of the level of the first quarter. As a result of the phasing-out of support measures, consumer price inflation increased from 2.0% in March to 2.6% in June, but remained within the monetary policy target corridor. HICP inflation excluding energy and food fell further to 3.6%. The central bank left its policy rate unchanged at 5.75%.

In the euro area, the moderate expansion of economic output continued in the second quarter of 2024, and there are no signs yet of a strong, broad-based upswing. According to Eurostat’s flash estimate, GDP rose by 0.3% on the quarter in price and seasonally adjusted terms, as it had done in the first quarter. Growth was driven primarily by services. By contrast, the period of sluggishness in manufacturing continued. The impetus from the global economy appears to have had barely any impact on euro area industry. There is no sign of any improvement in this area for the current quarter, either. Services activity is still holding up well, despite a certain slowdown. The notable divergence of economic activity, which has been ongoing since the beginning of 2023, therefore appears to be continuing.

Private consumption continued to recover. Retail sales increased markedly in price-adjusted terms, and expenditure on services probably also rose again. By contrast, the number of new car registrations declined again. Marked gains in purchasing power are likely to have been the key factor behind rising household demand. Labour income grew strongly, whilst inflation eased. As hitherto, though, only part of these gains in purchasing power probably fed through to expenditure. The saving rate had already risen significantly again in the first quarter, and the propensity to save remained high according to surveys.

Investment activity probably declined. 4 Construction investment, in particular, is likely to have fallen in the second quarter in seasonally adjusted terms, after having benefited from the exceptionally mild winter weather in the previous quarter. Construction output fell markedly in April and May compared with the average of the first quarter. There is also likely to have been a decline in investment in machinery and equipment across much of the euro area, given the persistent slump in industry. Capital goods producers’ domestic sales decreased in April and May after price adjustment. By contrast, expenditure on information and communication technologies and on intellectual property is likely to have risen further as the trend to go digital continued.

Exports probably markedly lost steam in the second quarter, despite buoyant global trade. Exports of capital goods are likely to have fallen once again, and the increase in exports of intermediate goods probably slowed distinctly. Exports of goods thus continued to lag behind rising global demand. One major reason for this loss of market share is likely to be the deterioration in the competitiveness of euro area industry. Industrial enterprises have been assessing their competitiveness in global markets as not good for some time in European Commission surveys. In addition to the burden of high energy costs, product range effects are probably also a factor here, especially in the automotive sector. By country, exports to China, in particular, probably declined markedly, whilst exports to the United States and the United Kingdom increased. Euro area services exports are likely to have risen again, albeit less strongly than before, according to balance of payments data. Imports of goods from third countries probably increased notably in the second quarter, primarily imports of non-durable consumer products, which is probably associated with the recovery in private consumption.

In manufacturing, the slump continued and industrial capacity utilisation fell further below its long-term average. Production of intermediate and capital goods contracted in the second quarter. By contrast, consumer goods production, including the manufacture of motor vehicles, recovered somewhat after the decline in the previous quarter. In addition to the weakness in competition in international markets, the subdued investment activity in the euro area was also important here. Producer price pressures remain low. Producer and import prices of intermediate products fell year-on-year through the end of the reporting period but have been rising again month-on-month since March. For finished products, price growth weakened year-on-year and remained subdued month-on-month.

Expansion in the services sector continued. While the activities of the information and communication sector, in particular, probably picked up markedly, the activities of business service providers also probably saw a similar rise. Business activity seems to have levelled off again only in the hotel and restaurant sector. According to European Commission surveys, a shortage of labour continues to weigh on the services sector.

In most Member States, economic growth continued in the second quarter. However, there were still considerable disparities. Economic growth took place mainly in countries where tourism plays a major role and where substantial projects are funded by the European Recovery Fund. Conversely, the ongoing weakness in manufacturing dampened growth in countries with a high industrial share, including, above all, Germany. 5

In France, economic output rose markedly again in the second quarter. According to preliminary estimates, real GDP increased by 0.3%, as in the previous quarter. Economic growth was largely driven by strong exports. Tourism was also buoyant. Domestic demand remained muted, however. Although investment rose somewhat for the first time in three quarters, private consumption stagnated again, with a marked increase in demand for services but weak goods consumption. On the supply side, business developments in the services sector remained buoyant. The hotel and restaurant sector gained significant momentum after making a weak start to the year, and activity in business services and in the information and communication sector remained high. By contrast, industry and construction activity contracted.

In Italy, economic activity increased once again. According to preliminary estimates, real GDP rose by 0.2%, following an increase of 0.3% in the previous quarter. The main boost was delivered by an uptick in domestic demand. Private consumption and investment are likely to have increased slightly. By contrast, goods exports probably fell, which also reflects the weakness of Italian industry. As in the previous quarter, industrial output declined. By contrast, service providers’ activity rose.

Spain’s strong upswing continued. According to preliminary estimates, real GDP picked up by 0.8%, as in the previous quarter already. Growth was driven by an increase in private consumption and higher investment. In addition, exports once again rose markedly. On the other hand, imports fell slightly. On the supply side, manufacturing and services output increased significantly. By contrast, activity in the construction sector pretty much treaded water.

In almost all smaller Member States, economic output continued to rise in the second quarter. Real GDP rose significantly in Cyprus, Ireland, Lithuania, and the Netherlands. Belgium, Estonia, Finland, Slovakia and Slovenia saw moderate growth. In Austria and Portugal the economy stagnated, while activity declined significantly in Latvia.

The labour market situation remained favourable in the second quarter. The unemployment rate remained close to its all-time low at 6.5% in June, and the number of employees rose again slightly. At the same time, labour market tightness eased further, as the job vacancy rate fell, a European Commission indicator showed that labour hoarding declined somewhat, 6 and employment expectations for the next three months diminished. Wage growth was also comparatively high in the second quarter, however, at a projected figure of between 4% and 5% on the year.

Inflation barely eased in the second quarter and remained elevated. Measured by the HICP, consumer prices rose by 0.6% on the quarter in seasonally adjusted terms, corresponding to an annualised rate of 2.4%. The continued comparatively strong inflation was driven by the persistent strong upward dynamics in services prices, where the strong wage growth has had a particularly profound impact. By contrast, food prices rose only slightly. For non-energy industrial goods, inflation came to a complete standstill. Energy prices, having still risen slightly in the first quarter, fell somewhat.

Price inflation remained virtually unchanged year-on-year, too. At 2.5% in the second quarter, the inflation rate was only slightly lower than in the previous quarter (2.6%). Services prices made by far the largest contribution year-on-year here, too. Here, inflation has remained entrenched at around 4% since the end of 2023. It is therefore significantly higher than for the other components of the HICP and also markedly stronger than its long-run average. By contrast, price dynamics for food and non-energy industrial goods weakened distinctly. At 2.6% and 0.7%, respectively, inflation rates here were roughly the same as their long-run averages. This suggests that the disinflation process for goods is largely complete. After falling on the year for four quarters, energy prices have now reached a level similar to those of the previous year. Core inflation excluding energy and food continued to fall somewhat, dropping from 3.1% to 2.8%.

Although the inflation rate rose slightly again in July, it is initially set to decline somewhat thereafter. According to Eurostat’s estimate, inflation rose in July to 2.6% from 2.5% in June. Energy prices, in particular, rose more strongly than before. Concerning the other components, inflation was roughly as strong as before. The core inflation rate therefore held steady at 2.9%. As expected, the disinflation process thus took a breather. Over the next few months, however, the inflation rate is likely to temporarily decline again somewhat before then probably going back up in the final months of this year. These fluctuations are mainly attributable to base effects from energy. Only at the beginning of 2025 should the generally downward trend in inflation re-emerge more prominently.

In the current quarter, the macroeconomic recovery in the euro area could continue at roughly the same pace as before. Private consumption can be expected to carry on supporting the underlying upward economic trend. Consumer confidence, at least, improved steadily until July. Households, in particular, assessed their financial situation better. Their willingness to make bigger-ticket purchases has also risen significantly recently. In industry, on the other hand, the signs continue to point towards contraction. Sentiment has declined, probably because of the deterioration in the competitive position of euro area firms and a certain increase in gloom regarding global industrial activity. The outlook for the construction sector remained subdued. According to surveys, orders declined once again and the number of building permits for residential buildings remained entrenched at a low level. By contrast, the services sector is set to continue its expansion, even if the generally upbeat sentiment has eased somewhat. A strong and broad-based upswing will probably only occur once industry overcomes its pronounced period of weakness and private consumption picks up even more momentum.

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