GDP growth accelerates in the third quarter

Economy gains momentum: GDP growth accelerated to 3.9% year on year in the third quarter from 3.5% in the second quarter. On a seasonally adjusted quarter-on-quarter basis, economic growth edged down 0.8% in Q3, compared to the previous period's 1.0% growth.

Government spending and exports lead the upturn: The annual improvement was driven by stronger outturns in government spending and exports. Domestically, government spending improved to a 5.3% expansion in Q3 (Q2: +3.8% yoy). That said, household spending increased 5.5% in the third quarter, which was below the second quarter's 6.0% expansion. Moreover, fixed investment growth softened to 9.2% in Q3 from the previous quarter’s 11.7%. On the external front, exports of goods and services rose 1.5% in the third quarter, rebounding from the second quarter's 1.3% contraction and marking the strongest reading in over a year. Conversely, imports of goods and services growth waned to 4.1% in Q3 (Q2: +5.2% yoy).

Momentum to soften in 2025: Our panelists expect GDP growth to cool in Q4 and to stabilize at a level slightly below that of 2024 in 2025. A broad-based deceleration in domestic demand is set to outweigh stronger exports growth. Nonetheless, the economy will remain among the Euro area’s top performers. Weaker-than-expected Euro area demand poses a downside risk.

Panelist insight: Alen Kovac, analyst at Erste Bank, commented on the outlook for private consumption: “Fundamentals on labor market side remain supportive, yet wage growth is anticipated to moderate back to single-digit region, while employment gains are also seen softening after strong gains this year, hence disposable income growth – while remaining supportive, should lose some steam next year. Considering potentially more cautious consumers, given the increasing global uncertainty, we are expecting private consumption growth to moderate back to 3-4% region in 2025.”

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