Q4’s GDP growth upgraded slightly

Q4 GDP reading upgraded: A detailed release revealed that GDP growth came in at 0.2% on a seasonally adjusted quarter-on-quarter basis in Q4, above the prior estimate of 0.1% but still below Q3’s 0.4% rise. On an annual basis, economic growth improved to 1.2% in Q4 from the previous quarter's 1.0% growth. As a result, over 2024 as a whole, GDP growth rose to 0.8% in 2024 from 0.5% in 2023, though it remained under the preceding decade’s average of 1.6%.

Domestic demand drives the deceleration: Looking at a breakdown for the quarter-on-quarter expansion, household spending growth moderated to 0.4% in Q4 from 0.6% in Q3. In addition, public consumption growth fell to 0.4%, the slowest since Q2 2024 (Q3: +0.9% qoq s.a.). Moreover, fixed investment growth slowed to 0.6% in Q4, following Q3’s 1.8% increase. On the external front, exports of goods and services fell 0.1% on a seasonally adjusted quarterly basis in the final quarter, which was above the third quarter's 1.4% contraction. Conversely, imports of goods and services deteriorated, contracting 0.1% in Q4 (Q3: +0.5% qoq s.a.). In terms of key countries, the German and French economies swung into contraction, and the Netherlands lost some steam. Meanwhile, Spanish GDP maintained its brisk pace of expansion, and Italy rebounded timidly.

GDP growth to remain below trend: Sequential GDP growth is forecast to remain muted in the coming quarters. Although 2025 economic growth is seen slightly above 2024’s, it will remaining subdued by historical standards. Private spending is forecast to slightly accelerate in 2025 as inflation declines closer to the ECB’s 2.0% target. Moreover, lower interest rates will underpin a rebound in fixed investment. That said, much depends on the timing and magnitude of U.S. tariffs on the EU; our panelists have recently downgraded their export forecasts for the bloc in light of Trump’s increasingly protectionist actions and rhetoric.

Panelist insight: Regarding U.S. tariffs, analysts at the EIU commented: “We expect Mr Trump to impose a blanket import tariff on EU goods at a low level, and target specific sectors with higher rates. Overall, we forecast that new US tariffs will raise the weighted average tariff rate (WATR) on EU goods from 3.5% currently to about 10%, with the impact differing by country.”

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