(July 30): The euro area’s biggest economies all expanded in the second quarter, demonstrating the bloc’s continued ability to weather the fallout from the Iran war.

Gross domestic product (GDP) rose 0.2% in Germany, Italy and France, with the latter avoiding a recession after a surprising weak start to the year. Spanish output surged 0.7%, more than expected.

Thursday’s numbers augur well for the currency bloc as a whole, which has defied the disruption and uncertainty wrought by the conflict in the Middle East and is expected to reveal second-quarter expansion of 0.2% at 11am Paris time.

While surges in oil prices have driven up inflation, weighed on household budgets and curbed investment, the region has largely withstood the knock-on effects from Donald Trump’s war. Recent indicators point to further improvement, even as fighting clouds the peace process between Washington and Tehran. Businesses proved more optimistic than anticipated in Germany and France in July.

The full effect of the initial energy shock “has yet to play out”, however, according to the European Central Bank. While it held interest rates steady this month, it warned of upside risks to inflation and downside risks to growth. Some officials are inclined to add to June’s hike and investors are anticipating another move in September.

Spanish inflation jumped more than anticipated in July, to 3.8%, while German regional data also accelerated. Data due Friday are set to show price gains in the eurozone quickened slightly to 2.9%. Slovak central-bank Governor Peter Kazimir said this week that the ECB will have to raise borrowing costs at least once more to ensure inflation risks don’t spin out of control.

Other key GDP numbers across the euro area:

While second-quarter growth in Germany slowed following a surprisingly strong start to the year that was revised even higher on Thursday, to 0.4%, activity has remained more resilient than anticipated. Recent indicators point to some improvement thanks to massive infrastructure and defence spending, as well as optimism over a package of reforms unveiled this month.

The flow of positive data suggests a recovery in the second half of 2026, according to the Economy Ministry, though the outlook still hinges on the unpredictable developments in the Middle East.

French GDP rose after an unxepected drop of 0.1% in the first three months of 2026, with Thursday’s reading showing consumer spending up 0.2% and a further boost from trade. Even so, investment shrank for a second straight quarter.

Finance Minister Roland Lescure was upbeat, saying France is resisting headwinds and that Thursday’s data support the government’s latest prediction for the economy to expand 0.7% this year, even if the aim to tame a hefty budget deficit is getting trickier.

Italy, the European Union’s second-largest gas consumer after Germany, is particularly exposed to the increase in energy prices caused by the Iran conflict. Both the government and the central bank see full-year growth of 0.6%, a target that may be harder to hit if investments and consumer spending slow.

The worsening outlook is bad news for Prime Minister Giorgia Meloni, who’s been struggling with an increasingly fractured coalition and the difficulties of balancing EU fiscal requirements with a desire to protect voters from the worst of the crisis before elections next year.

Spain, meanwhile, has outperformed its peers since the pandemic, driven by resilient consumer spending, the integration of migrants, a rebound in tourism and an influx of EU funds. The expansion has been accompanied by the strongest labor-market performance since the global financial crisis, alongside a reduction in both the budget deficit and public debt.

“In such a difficult and complex environment, we’re on track to end 2026 growing five times faster than Italy, four times faster than Germany and three times faster than France,” Prime Minister Pedro Sanchez said this week. His government foresees an expansion of 2.6% in 2026.

Uploaded by Chng Shear Lane