Eurozone economy motors on despite Middle East war
The Eurozone economy is demonstrating resilience in the face of geopolitical turmoil, with GDP growth reported at 0.4% for Q2, a figure that may understate underlying economic strength. Per the full note from ing-think, despite downside risks from the Middle East conflict, the Eurozone continues on a steady growth trajectory, bolstered by factors including a notable revision of Irish GDP figures and consistent public investment. With the backdrop of this economic performance, institutional traders should closely monitor FX positioning ahead of any potential shifts in sentiment or data revisions.
What the desk is arguing
The desk argues that the Eurozone's economic resilience, illustrated by a 0.4% GDP growth in Q2 and upward revisions in earlier data, may not be fully appreciated by the market. Per the full note from ing-think, the persistence of moderate growth despite global uncertainties suggests a robust underlying economic structure.
A notable detail from the commentary is the revision of Ireland's Q1 GDP from -0.2% to 0%, showing how critical this small economy can be in skewing Eurozone-wide metrics. Adjusting for Irish data, the Q2 growth stands at 0.3%, indicating that the core Eurozone nations exhibit a steady, albeit modest, growth rate.
The alternative read would be that the Eurozone's stability could be disrupted by escalating geopolitical tensions or a major downturn in related economies, emphasizing the importance of vigilance in monitoring external impacts on the Eurozone's economic fabric.
Where it sits in our coverage
Our consensus target for the EUR/USD remains at 1.075, with a range between 1.04 and 1.12. Specific firm forecasts indicate:
This view aligns with the broader consensus among traders that favors a bullish outlook for the Euro against the USD, particularly as some firms predict stronger than average growth in the upcoming quarters. The desk's perspective, with a target situated towards the upper end of this range, reflects a cautiously optimistic sentiment.
How other firms see it
Firms like jpmorgan and deutsche bank maintain an optimistic view, positioning for Euro strength amid solid economic indicators. In contrast, bofa presents a more cautious stance, suggesting potential vulnerabilities that could hinder Euro performance.
In this context, the EUR/USD trajectory will likely reflect macroeconomic indicators such as GDP growth rates and consumer sentiment, especially given the interconnectedness of Eurozone markets with broader global conditions, particularly energy prices and geopolitical stability.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Eurozone's Q2 GDP growth of 0.4% suggests underlying resilience despite external risks.
- 02Revisions in Irish GDP figures significantly impact overall Eurozone metrics.
- 03Steady public investment and manufacturing gains mitigate some geopolitical risks.
- 04Institutional traders should remain alert to sentiment shifts affecting the Euro.
Market implications
Traders should watch the EUR/USD closely, particularly if it breaks technical levels around 1.075. The stability of public investments and potential shifts in geopolitical developments could shift market sentiment significantly.
Risks to this view
A surge in geopolitical tensions or a sharper-than-expected economic slowdown in key Eurozone markets would undermine the current growth outlook and could lead to a rapid depreciation of the Euro.
Newer quick take Older quick take Quick take Published 10:26 Eurozone economy motors on despite Middle East war With GDP growth of 0.4% in the second quarter and an upward revision to the first, eurozone strength may be underestimated. Yes, downside risks clearly remain amid the Middle East and other global uncertainty drivers – but a continued decent growth pace is not an unreasonable bet for the quarters ahead Despite continued uncertainty amid war in the Middle East, we see a few bright spots for the eurozone growth outlook over the coming months Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Bert Colijn Chief Economist, Netherlands The eurozone economy seems to have once again shrugged off a global economic shock quite well. The US-Iran war and subsequent rising energy prices have not done much to dent eurozone growth rates so far.
The second-quarter growth rate came in at a strong 0.4% quarter-on-quarter, which was the fastest since the first quarter of 2025. But truth be told, eurozone headline GDP data continues to be distorted significantly by jumps in Irish data, which is notorious for being influenced by multinational accounting activity. Mainly because of Ireland, a -0.2% decline in GDP was initially recorded for Q1.
This has now been revised up materially to 0%. In Q2, Ireland saw a strong contribution to GDP growth with 3.9% QoQ. The question is how meaningful this really is when assessing economic activity in the eurozone.
Stripping out Ireland, we see that GDP growth would have been 0.3% in Q2 – only modestly stronger than in Q1. In fact, growth has been around 0.3% since Q3 last year for the eurozone excluding Ireland. A surprisingly steady and decent pace, given all the uncertainty and the negative economic impact from trade and war in the Middle East.
But manufacturing has profited from smaller energy price increases than in Asia. And with steady public investment and defence spending increases, the manufacturing sector remains upbeat about the second half of the year. While consumers remain downbeat on Middle East developments, steady wage increases have provided a buffer from higher prices at the pump.
Of course, the war in the Middle East poses the main downside risk to the eurozone economy for the moment. But bar a prolonged period of significant re-escalation, eurozone GDP growth could well continue to motor on at a decent – though not spectacular – pace. At a time when risks are so prominent, that’s actually quite good news.
GDP Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Newer quick take Older quick take
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