The latest economic data indicates that the eurozone's recovery is losing momentum, with industrial production continuing to drag on growth and sentiment indicators suggesting a weakening in the strong momentum seen earlier this year, reported Oxford Economics in a note on July 19.

As expected, the European Central Bank (ECB) kept interest rates unchanged at its July monetary policy meeting. The council cited insufficient progress in disinflation for services and core inflation as the reason for holding rates steady, though analysts still anticipate a rate cut in September based on inflation data.

Disappointing economic releases have become the norm, with recent sentiment data trending down or falling below expectations. Real activity figures point to weaker GDP growth in Q2 compared to Q1. Industrial production contracted again in May, likely ensuring a decline in output for Q2. Expectations for a recovery driven by an upturn in the inventory cycle have not materialised, with surveys indicating low levels of new orders and raising concerns about weaker-than-expected performance in the second half of the year.

At the ECB meeting, the central bank reaffirmed its data-dependent, meeting-by-meeting approach to policy setting, without committing to a specific policy path. This cautious stance, combined with recent market pricing and interest rate assumptions, signals a likely rate cut in September when updated macroeconomic forecasts will be released. ECB President Christine Lagarde expressed concerns about the strength of the economy, particularly regarding corporate capital expenditure, and downgraded the risk assessment of growth prospects, which are now seen as tilted to the downside.

In political news, Ursula von der Leyen was re-elected as president of the European Commission for a second five-year term, receiving 401 votes, 41 more than needed. Despite facing strong opposition, von der Leyen likely gained support from MEPs outside the centrist groups, including the Greens and the hard-right ECR group, who secured several vice-presidencies in the Commission's various committees.

In her re-election speech, von der Leyen pledged to maintain an ambitious green transition agenda, committing to reduce emissions by 90% by 2040. However, given the recent geopolitical events and the parliament's shift to the right, the European Commission will also focus on balancing the costs of the energy transition for consumers and businesses while bolstering the bloc's competitiveness against the US and China.