Euro Area: Economy dips in Q3

Euro Area GDP Q3 2023

Euro Area: Economy dips in Q3

The economy contracted 0.1% in seasonally adjusted quarter-on-quarter terms in Q3, following Q2’s 0.2% expansion and matching market expectations. Compared with Q3 2022, seasonally adjusted annual GDP increased by 0.1% in Q3, following a 0.5% increase in the previous quarter.

The quarterly decline came on the back of worsening external demand and higher interest rates. In terms of individual countries, Germany’s GDP fell 0.1% over the previous quarter in Q3, Italy’s economy stagnated, the French economy expanded 0.1% and Spanish GDP grew 0.3%.

Momentum should remain subdued in the fourth quarter of 2023, restrained by depleted savings and tight financing conditions. Next year, GDP should expand at a paltry pace. The industrial sector should rebound on the back of Germany’s recovery. That said, waning savings and still-high interest rates will keep a lid on growth. EU funds disbursements should support activity, however. Heavy public debts and rising debt-servicing costs in the Mediterranean countries, coupled with a possible reignition of financial turbulence, pose downside risks to the outlook.

Commenting on the outlook, Bert Colijn, senior Eurozone economist at ING, stated:

“While a technical recession is certainly possible in the second half of this year on the back of the third-quarter GDP reading and a weak start to the quarter according to first business surveys, we don’t see too much reason for real alarm so far. It does look like the economic environment is weakening at the moment, but no sharp recession is in sight either.”

Moreover, ING’s Peter Vanden Houte said:

“All in all, we expect flat to slightly negative GDP growth over the next two quarters, followed by a timid recovery from the second quarter of 2024 onwards. By then, the impact of monetary tightening should gradually peter out.”

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