GDP growth gathers pace in Q1

Momentum strengthens at the outset of 2025: A second release confirmed that GDP growth gained momentum to 3.0% year on year in the first quarter from 2.6% in the fourth quarter of last year. On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth picked up to 1.3% in Q1 from the previous quarter's 0.2% expansion, marking the fastest expansion since Q1 2022.

Households and exports drive the improvement: Domestically, private consumption increased by 2.5% in the first quarter, slightly above the fourth quarter's 2.4% expansion. Less positively, public spending contracted by 0.4% (Q4 2024: +1.5% yoy). Moreover, fixed investment growth waned to 20.4% in Q1 following Q4’s 61.5% as machinery equipment and weapon systems investment decelerated from Q4’s stellar result. On the external front, exports of goods and services bounced back, growing 1.1% in Q1 (Q4 2024: -1.1% yoy) as services exports gathered steam. Conversely, imports of goods and services growth moderated to 3.9% in Q1 (Q4 2024: +8.4% yoy).

GDP growth to cool this year: Our panelists expect growth to ease in the coming quarters and in 2025 as a whole relative to 2024 due to greater global trade barriers denting exports. That said, domestic demand will remain upbeat, aided by ECB interest rate cuts, healthy wage growth and a tight labor market. Consequently, the economy will continue to outpace its long-run trend and the Euro area average. The ongoing conflicts in Ukraine and the Middle East as well as trade relations between the EU and the U.S. are key factors to track.

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