A woman pays for fruits at Campo de’ Fiori market in Rome, Italy. Reuters

The eurozone’s economy grew slightly more than expected in the three months to June, data showed, but a mixed underlying picture and a string of pessimistic surveys cloud the outlook for the rest of the year.

The figures paint a picture of a bloc that is struggling to regain its ground in global trade but continues to enjoy a domestic rebound fuelled by higher real incomes and public spending.

Output in the 20 countries that share the euro increased by 0.3 per cent in the second quarter of the year, Eurostat data showed, keeping up the pace from the previous quarter and slightly beating economists’ expectations.

Among large economies, France and Spain did better than expected, Italy held its ground while German output unexpectedly contracted, strengthening fears about a lengthy crisis in a country that was for a decade Europe’s powerhouse.

Consumer confidence also remained negative in July, adding to a number of weak surveys in recent days.

“The eurozone economy is quite like the water quality of the Seine: some days it may look okay but overall it’s poor enough to continuously worry about it,” ING economist Bert Colijn said in reference to Paris Olympics hosts’ troubles with scheduling events because of pollution levels in the river.

The 0.3 per cent quarterly increase in French GDP was a case in point. While growth was a touch better than expected, this was partly due to the delivery of a single cruise ship boosting exports and offsetting flat consumer spending.

Still, it brought welcome relief to a country mired in political uncertainty and facing investor doubts about its growing debt.

“French growth could surprise on the upside this year and rise to around 1.2 per cent,” Hadrien Camatte, an economist at Natixis, said. “This is also good news for public finances, which would benefit from this growth pickup.”

The Italian economy grew by 0.2 per cent as inventories more than compensated for a drop in net exports, while Spain notched up a much stronger-than-expected 0.8 per cent, in part attributed to public investments.

Germany lagged, with output falling by 0.1 per cent due to lower investments in equipment and buildings in Europe’s largest economy.

Economists worry that rather than a short-lived dip, the the data reflects Germany’s fundamental lack of competitiveness, partly due to the disruption of its business model based on cheap energy from Russia and intense trade with China.

“Companies are suffering from the long-standing erosion of German competitiveness, and consumers are laboring under the recent inflation-induced slump in purchasing power,” Joerg Kraemer, an economist at Commerzbank, said in a note.

Inflation rose in several German states in July, regional figures showed on Tuesday, indicating that a national reading due later in the day was unlikely to come below last month’s 2.5 per cent.

In contrast, price growth slowed more than expected in Spain to 2.9 per cent from 3.6 per cent in June.

Eurozone-wide figures will shed light on the case for a rate cut by the European Central Bank in September, with the market expecting one more cut by the end of the year.

“Although growth remains steady, we think the case for additional ECB rate cuts is strengthening as price expectations are easing,” Alexander Valentin, an economist at Oxford Economics, said in a note.

Meanwhile Italy’s economy grew by 0.2 per cent in the second quarter from the previous three months, driven by domestic demand, preliminary data showed, in line with forecasts.

On a year-on-year basis, second quarter gross domestic product in the eurozone’s third largest economy was up 0.9%, national statistics bureau ISTAT said, also in line with a Reuters survey.

Italy’s government forecast in April that the economy would expand 1 per cent this year, broadly in line with last year’s 0.9% growth rate.

“From the demand side, there is a positive contribution by the domestic component (gross of change in inventories) and a negative one by the net export component”, ISTAT said.

It gave no numerical breakdown of components with its preliminary estimate, but said services had supported the growth whereas both industry and agriculture had made a negative contribution.

The statistics bureau signalled that the quarterly increase was the fourth consecutive one, with “acquired variation growth” at the end of the second quarter at 0.7 per cent.

That means that if quarterly GDP growth were flat for the rest of 2024, full year growth would still come in at 0.7 per cent.

Meanwhile the eurozone government bond yields edged up after economic data from several countries in the region confirmed a mixed backdrop and did not change expectations for the European Central Bank’s monetary easing path.