GDP growth edges down in the fourth quarter

Economy ends 2024 on a weaker note: GDP growth inched down to 1.5% year on year in Q4 from 1.6% in Q3. On a seasonally adjusted quarter-on-quarter basis, economic growth rose to 0.6% in Q4 from the previous quarter’s 0.4%, marking the strongest reading since Q4 2023. Full-year GDP growth fell to 1.6% in 2024 (2023: +2.1%), marking the weakest reading since 2020 and falling short of the pre-pandemic 10-year average of 1.9%.

Growth in public and private spending slows: Domestically, household spending growth fell to 1.2% in Q4 (Q3: +1.7% yoy)—the weakest expansion in a year. Moreover, government spending growth slowed to 5.7% (Q3: +9.2% yoy). That said, fixed investment contracted 5.2%, though the decline was less severe than Q3’s 8.1% drop. Externally, exports of goods and services growth decelerated to 3.9% in the fourth quarter (Q3: +9.5% yoy), while imports of goods and services growth slowed to 2.3% (Q3: +8.0% yoy), curbing the contribution of net trade to the overall reading.

GDP growth to strengthen in 2025: Looking ahead, our panelists forecast GDP growth to strengthen in 2025 from 2024’s rate. ECB interest rate cuts will underpin a rebound in fixed investment and stronger private consumption growth. That said, fiscal consolidation efforts will dent public spending growth, and exports growth will lose steam. Higher-than-expected U.S. tariffs, a prolonged malaise in Germany’s automotive sector, and weaker-than-expected EU demand are downside risks.

Panelist insight: Commenting on the outlook, Alen Kovac, analyst at Erste Bank, said: “Looking into this year, we expect domestic demand to remain pivotal growth engine, with private consumption maintaining steady growth momentum, coupled with the improving investment activity profile. On the other hand, despite resilient exports performance in 2H24, challenges regarding the external demand developments are seen weighing on the export outlook, thus diminishing net exports contribution in period ahead.”

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