Euro Zone Industry Shrinks More Than Feared in June but GDP Holds Up

Industrial production across the euro zone declined by 1.3% in June, underperforming forecasts of a 1.0% contraction. This sharper-than-expected drop was driven by weakness in German manufacturing and a broad slowdown in consumer goods output. Additionally, May’s growth figure was revised downward, from +1.7% to +1.1%, hinting at a more subdued underlying trend.
Nonetheless, the wider economy showed resilience in the second quarter: GDP grew by 0.1%, matching earlier estimates, while employment rose modestly by 0.1%, in line with expectations. These results come amid a backdrop of cautious investor optimism, bolstered by a recent EU–U.S. trade agreement and Germany’s budgetary stimulus plans—factors that are tempering expectations of further rate cuts by the ECB.
Still, structural inefficiencies and subdued growth prospects are likely to cap expansion in the euro zone to around 1% annually. Measured year-over-year, second-quarter GDP rose by approximately 1.4%, partly buoyed by pre-tariff demand surges. The industrial slump was widespread, notably with non-durable consumer goods down 4.7%, capital goods off 2.2%, and a pronounced volatility-driven drop of 11.3% in Ireland’s output.