The right-wing National Rally’s success in France’s legislative election has overshadowed recent disappointing eurozone economic data. The bloc’s Citi economic surprise index turned negative for the first time since January, raising concerns about the region’s recovery.
Gavekal Research maintains optimism, noting demand remains subdued despite recent stabilization. European Commission surveys show demand constraints affecting 34.2% of eurozone businesses in Q2 2024, up from 33% in Q4 2023. Positive signs include a 4.8% year-on-year rise in nominal wages in Q1 2024, boosting real wages by 2.4 percentage points.
Analysts highlight the need for a strong bank lending cycle to support recovery, with recent data indicating an upward trend. The European Central Bank’s potential rate cuts could further aid this upturn. However, fiscal policy remains a concern as the EU reintroduces fiscal rules, threatening actions against several countries for excessive deficits.
Gavekal concludes that while a rapid rebound in domestic demand is unlikely, conditions for improvement by year-end are in place.
