GDP growth records fastest upturn in two years in Q3

Economic growth accelerates in Q3: A detailed release confirmed that 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 and marking the strongest expansion since Q3 2022. On an annual basis, economic growth also gathered pace, picking up to 0.9% in Q3, from the previous quarter's 0.5% increase and marking the strongest reading since Q1 2023.

Private spending and investment drive the improvement: The quarterly uptick was largely driven by stronger demand. Private consumption increased 0.7% in the third quarter, aided by softer price pressures (Q2: 0.0% s.a. qoq). Moreover, fixed investment rebounded, growing 2.0% in Q3, contrasting the 2.4% contraction recorded in the prior quarter. That said, this was largely driven by a sharp rebound in Ireland, where the predominance of multinational companies leads to volatile GDP and investment readings. Less positively, government spending growth waned to 0.5% in Q3 (Q2: +1.2% s.a. qoq). On the external front, exports of goods and services worsened, contracting 1.5% in Q3 (Q2: +1.5% s.a. qoq). In addition, imports of goods and services growth waned to 0.2% in Q3 (Q2: +1.1% s.a. qoq). In terms of key countries, the German economy rebounded and the French one expanded at a faster pace compared to Q2. Meanwhile, Spanish GDP maintained its brisk pace of expansion, while the Netherlands lost some steam and Italy slowed to a halt.

GDP growth to strengthen in 2025: Our Consensus is for GDP growth to lose some steam in Q4 due to a slowdown in demand. Looking at 2025, the economy is expected to expand at a faster pace than in 2024. Looser financing conditions are set to prompt a rebound in fixed investment. Moreover, private spending should gain some strength as inflation cools to near the 2.0% ECB target. Rising U.S. protectionism under a Trump presidency clouds the outlook, though our panelists still expect exports growth to accelerate in 2025.

Panelist insight: ING analysts commented on 2025’s outlook: “The newly installed European Commission will rapidly be confronted with potential trade initiatives by the new US administration, while at the same time having to launch initiatives to put the recommendations of the Draghi Report in practice. With a constantly threatened minority government in France and German elections in February the political backdrop is not ideal to relaunch the eurozone economy, which has all but come to a standstill.”

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