The sluggish exports weigh on the economy, causing the Eurozone's second-quarter GDP to be downgraded to 0.1% on a quarterly basis.

As new data shows weak export performance, the eurozone's second-quarter GDP quarterly rate has been revised down from 0.3% to 0.1%, compared to an expected rate of 0.3%. The year-on-year GDP rate for the second quarter has been revised down from 0.6% to 0.5%, compared to an expected rate of 0.6%. This means that the eurozone economy almost did not grow in the second quarter, amidst already weak domestic demand and the impact of external demand shocks. Thursday's report provides further evidence of the continued weakness of the eurozone economy, providing European Central Bank (ECB) policymakers with stronger evidence of the need to raise rates again in order to curb inflation. At the ECB's meeting in July, some officials expressed concerns that stagflation might persist, and the new data may make this prospect even bleaker. The economic outlook for the eurozone for the rest of the year also seems bleak. PMI data shows that private sector activity is contracting and economic confidence has unexpectedly slowed. Germany, the largest economy in the eurozone, has also released a series of poor economic data, including unexpected declines in industrial output and consumer confidence, as well as worsening sentiment among exporters. The downward revision of the second-quarter GDP growth rate in the eurozone increases the possibility of the ECB lowering its forecast for this year's economic growth of 0.9% in the new quarterly forecast to be released on September 14. These data confirm that weak global demand has caused serious damage to exporters, dragging down the entire European region. Germany, the largest economy in the eurozone, and the third-largest economy, Italy, are currently facing the possibility of a manufacturing recession, with the latter experiencing an overall GDP contraction in the second quarter. The economic weakness in the eurozone has further spread from manufacturing to the services sector. The data shows that the idea that the services sector could save the eurozone economy has been shattered. The eurozone's services PMI in August was 47.9, below 50 for the first time this year. Instead of saving the economy, the services sector is now joining the manufacturing recession, which seems to have started in the second quarter. The decline in the overall economy is now greater than before, and stagflation is a frightening thing. However, this is exactly what is happening in the services economy, as economic activity begins to shrink. A series of poor economic data has fueled speculation that the ECB may pause its rate hikes in September. ECB board member and Governor of the Bank of Portugal, Centeno, warned earlier that there is a risk of over-tightening. He stated that at the monetary level, the risks of doing too much are becoming apparent. The speed of inflation decline is faster than the speed of rise, and the economy is adapting to the new financial environment. ECB Executive Board member Schnabel also acknowledged the risks to the economy, stating that recent trends "indicate weaker growth prospects than those in the benchmark scenario predicted by eurozone staff in June." However, the ECB may still choose to continue raising rates to curb inflation, as the slowdown in inflation is less than expected. Eurozone CPI rose by 5.3% year-on-year in August, higher than the expected 5.1%. Germany's CPI in August also rose by 6.4% year-on-year, exceeding the median expectation of 6.3% in economists' surveys. Any evidence of sustained strong growth in consumer prices may convince the ECB to increase borrowing costs. ECB board member and President of the Dutch central bank, Knot, also poured cold water on investors recently, stating that investors are largely betting that the ECB will not raise rates next week, and they may underestimate the possibility of an interest rate hike. Regarding the poor performance of multiple economic data in the eurozone recently, Knot also pointed out that GDP is the only major hard indicator for the ECB since July. And this data is actually more resilient than expected. What's more important is that the labor market has proven to be resilient, real income is starting to recover, and there are signs that the real estate market has hit bottom and rebounded. ECB board member and Governor of the National Bank of Slovakia, Kazimir, also stated that the ECB needs to raise interest rates again to ensure that inflation returns to 2%. He also pointed out that taking this step next week is preferable to pausing, as price growth is still too strong. Overall, the struggle of the ECB against inflation is far from declaring victory, but signs of economic slowdown have made the central bank hesitate on the need for further rate hikes. Currently, more than half of the eurozone central bank governors have publicly talked about the ECB's September interest rate meeting. Governors of central banks in Germany, Belgium, Austria, and Latvia have expressed support for another 25 basis point rate hike, but central bank governors in countries like Italy and Portugal have highlighted the emerging economic risks. In addition, ECB President Lagarde did not indicate in a recent speech whether the central bank would hike rates next week or maintain rates. Note: Some parts of the translation are edited and rephrased to improve clarity.