Euro Area: Third estimate confirms sharp GDP rebound amid easing lockdowns in Q3
According to a third estimate, the Eurozone economy bounced back strongly in Q3, with GDP surging a seasonally-adjusted 12.5% from the previous quarter (previously reported: +12.7% s.a. qoq), contrasting Q2’s record 11.7% plunge and logging the sharpest expansion since the series began in 1995. Compared with the same quarter in 2019, seasonally-adjusted GDP fell 4.3% in Q3, matching the preliminary estimate. The contraction was less than a third of Q2’s 14.7% freefall, which had marked the worst reading on record.
The historic quarterly rebound came as Covid-19-related containment measures were eased throughout the single-currency union, allowing businesses to resume activity and households to shop and travel. Household spending surged 14.0% over the previous quarter in Q3 (Q2: -12.4% s.a. qoq), amid recovering consumer sentiment and rising employment. Moreover, fixed investment jumped 13.4% (Q2: -16.0% s.a. qoq), thanks to stronger economic sentiment. Additionally, public consumption soared (Q3: +4.8% s.a. qoq; Q2: -2.2 s.a. qoq) as governments loosened their purse strings to support their respective economies. On the other hand, destocking subtracted 1.2 percentage points from growth, as companies opted to lighten their warehouses amid resurging demand.
Meanwhile, the external sector added 2.4 percentage points to growth. Exports increased 17.1% in Q3 (Q2: -18.9% s.a. qoq), again due to the reopening of businesses in the region and the gradual lifting of lockdown measures further afield. Imports also bounced back notably, although at a somewhat softer pace than foreign sales (Q3: -12.3% s.a. qoq; Q2: -18.2% s.a. qoq).
In terms of specific countries, the varying paces of recovery broadly mirrored the severity of the contractions in Q2. The sharpest rebound was recorded in France (Q3: +18.7% s.a. qoq), followed by Spain (Q3: +16.7% s.a. qoq) and Italy (Q3: +15.9% s.a. qoq). Meanwhile, Germany’s economy expanded at a considerably milder pace (Q3: +8.5% s.a. qoq), following a much softer drop in Q2.
Commenting on the release, Bert Colijn, senior Eurozone economist at ING, stated:
“GDP growth for the third quarter was revised down slightly to 12.5%. This is still a surprisingly strong recovery from the first lockdown period though GDP remained well below the pre-Covid peak and the fourth quarter is likely to be much worse.”
Activity should bounce back robustly in 2021, thanks to sustained EU funding, supportive monetary and fiscal policies and the gradual reopening of the global economy. However, lingering global trade disputes, a possible no-deal Brexit and rising stocks of public debt in the region cloud the outlook. That said, a faster-than-expected vaccine delivery could sustain growth.