Economy grows at a softer pace in Q4

Economy remains muted in 2024 as a whole: GDP rose 0.4% on a seasonally adjusted quarter-on-quarter basis in Q4, down from Q3’s 0.8% rise and marking the worst reading since Q1. On an annual basis, economic growth ticked up to 1.8% in Q4 from the previous quarter's 1.7% increase and marking the strongest expansion since Q1 2023. In 2024 as a whole, GDP growth was muted at 0.9% (2023: +0.1%), falling short of the pre-pandemic 10-year average of 1.6% due to a drop in investment.

Domestic momentum and net trade improve but inventories fall: Domestically, the moderation in quarter-on-quarter GDP growth stemmed from a sharp reduction in inventories, including gas reserves. Elsewhere in the economy, momentum improved. Household spending sped up to 0.9% in seasonally adjusted quarter-on-quarter terms in the fourth quarter (Q3: +0.8% qoq s.a.). Moreover, fixed investment growth accelerated to 3.0% in Q4, following the 0.4% increase in the prior quarter. Both subcomponents saw a one-off boost from anticipatory spending ahead of a new tax regime on motor vehicles from 1 January 2025. Meanwhile, government consumption sped up to a 0.9% expansion in Q4 due to an increase in healthcare spending (Q3: +0.8% qoq s.a.). Externally, exports of goods and services growth remained at Q3’s 0.4% in Q4. Conversely, imports of goods and services deteriorated, contracting 0.6% in Q4 (Q3: +0.8% qoq s.a.), marking the worst reading since Q1 2024, as gas imports declined. As a result, the trade balance rose by over 7% in Q4.

Economy to gather pace in 2025: The economy is forecast to gain speed in 2025 compared to last year. Monetary policy loosening in the Euro area will boost growth in private spending and drive a rebound in fixed investment. Additionally, exports growth is set to accelerate thanks to export frontloading in the first half of the year in anticipation of higher U.S. tariffs later on. A looming EU-U.S. trade war is a key downside risk to the outlook.

Panelist insight: ING’s Marcel Klok commented on the outlook: “We are moderately optimistic about domestic demand for now. As wages are expected to continue outpacing prices, consumption by households is likely to remain on its expansionary path. We also expect the expansionary trend in public consumption to continue, as underlying political and demographic forces remain. Trade is more uncertain though, with tariff hikes looming for European products. For now, we assume that exports will be boosted somewhat in the first quarter of 2025 in anticipation of US policy changes. Goods exports might suffer a weaker growth pace thereafter.”

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