Euro area records quickest economic expansion in two years in Q3

GDP surprises markets on the upside: According to a preliminary estimate, GDP growth improved to 0.4% on a seasonally adjusted quarter-on-quarter basis in the third quarter from 0.2% in the second quarter, marking a two-year high. The reading surprised markets on the upside; they were expecting the economy to broadly match Q2’s pace. On an annual basis, economic growth sped up to 0.9% in Q3 from the previous quarter's 0.6% increase and marking the best result since Q1 2023.

Germany and France drive the improvement: Looking at the Euro area’s largest economies, Germany posted a rebound, with sequential GDP growth reaching 0.2% in Q3 thanks to stronger household and government spending (Q2: -0.3% s.a. qoq). Additionally, economic activity growth accelerated to 0.4% from 0.2% in France, boosted by the Paris Olympics. Meanwhile, Spain remained the top performer among the Euro area’s large economies, matching Q2’s 0.8% print on the back of robust domestic demand. Less positively, the Italian economy broadly stagnated in Q3 after expanding 0.2% in Q2, hampered by a negative contribution from net exports.

Growth to strengthen in 2025: Our panel expects GDP growth to tick down in Q4. That said, the Euro area should expand at a faster pace in 2025 than in 2024, aided by monetary policy easing and lower inflation. U.S. tariffs in the event of a Trump presidency pose a downside risk.

Panelist insight: ING’s Bert Colijn commented on the near-term outlook: “The question remains as to whether or not today’s GDP data is not a dead cat bounce. We remain cautious about the outlook for the months ahead as the consumer continues to save, making a consumption recovery on the back of stronger real wage growth relatively muted. Investment will see some boost from lower rates, but the impact is set to be limited given the low capacity utilisation in industry and that the export environment is sluggish. So, don’t see this as the kick-off to a vibrant recovery – the eurozone economy remains sluggish for the moment, and GDP growth in the fourth quarter is likely to come in lower than the surprisingly strong third quarter reading.”

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