Economy enters a technical recession in the third quarter

GDP declines again: A second national accounts release confirmed that the economy remained in the doldrums in the third quarter, contracting 0.1% on a seasonally and calendar-adjusted quarter-on-quarter basis (Q2: -0.2% s.a. qoq). The reading fell short of a preliminary estimate of a 0.3% expansion and the Euro area’s 0.4% average. On a seasonally and calendar-adjusted annual basis, economic activity shrank 0.8%, improving from the 1.4% contraction logged in the prior quarter and marking the best result since Q1 2023.

Private spending remains weak: On the positive side, fixed investment rebounded 0.4%, swinging from Q2’s 0.3% decline; the ECB’s monetary policy loosening cycle likely supported capital outlays. Moreover, public spending rose 0.6% in Q3 (Q2: +0.1% qoq s.a.). Nonetheless, GDP continued to shrink due to continued, albeit less severe, falls in private spending and exports. Private spending contracted at a softer sequential clip of 0.2% (Q2: -0.8% qoq s.a.), likely benefiting from faster real wage growth and lower interest rates but continuing to be weighed on by downbeat consumer sentiment. On the external front, exports of goods and services dropped 0.6% in Q3 (Q2: -1.5% qoq s.a.). Meanwhile, imports of goods and services rebounded sharply, growing 1.1% in Q3 (Q2: -0.5% qoq s.a.) and marking the strongest result in seven quarters.

Economic recovery to take hold from Q4 2024: Our panel has penciled in a mild rebound for the final quarter of 2024, with laxer borrowing conditions and lower inflation likely continuing to support domestic demand. That said, our Consensus is for the economy to contract for a second consecutive year in 2024 as a whole. In 2025, GDP is seen returning to growth on accelerating private and public spending, plus rebounds in fixed investment and exports. A weaker-than-expected recovery in the German industrial sector is a downside risk.

Panelist insight: Unicredit’s Walter Pudschedl commented: “At the beginning of autumn, although sentiment in all sectors of the economy remains in pessimistic territory, there are first signs that the decline in inflation is beginning to support consumption. […] A slight upward trend is expected due to the more favorable framework conditions, supported by real wage growth and the easing of monetary policy. After the renewed decline in GDP of at least 0.5% in 2024, we expect real economic output to increase by 0.9% in 2025.”

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