Economy records sharpest contraction since Q2 2023 in Q3

GDP swings into decline and plunges into technical recession: A second release confirmed the economy fell into the doldrums in Q3: GDP contracted 0.8% year on year, falling below the 1.5% expansion tallied in the second quarter. Q3’s decline was the worst reading in over a year. On a seasonally adjusted quarter-on-quarter basis, GDP declined 0.7% in Q3 (Q2: -0.2% qoq s.a.), marking the sharpest fall since Q4 2022.

Weak external panorama weighs on momentum: On the domestic front, household spending growth edged up to 4.5% year on year in the third quarter (Q2: +4.2% yoy), which marked the best reading since Q2 2022. Moreover, government consumption declined at a milder pace of 1.4% in Q3 (Q2: -2.5% yoy). Lastly, fixed investment contracted at a slower pace of 14.0% in Q3, following the 15.3% contraction logged in the prior quarter. On the external front, exports of goods and services declined at a slower rate of 1.9% year on year in the third quarter (Q2: -2.1% yoy), which marked the best reading since Q3 2023. In addition, imports of goods and services declined at a milder pace of 0.9% in Q3 (Q2: -3.4% yoy), marking the best reading since Q1 2023. Meanwhile, with regard to production, Q3’s decline in annual GDP growth was due to deteriorations in the agricultural, industrial, construction and services sectors.

Economy to regain momentum: Looking ahead, our panelists anticipate the economy rebounding in annual terms in Q4 and accelerating further through the end of 2025. As a result, next year’s full-year GDP growth will be more than twice as strong as 2024’s projection thanks to rebounds in public spending, fixed investment and exports. Resilient household consumption will further buoy momentum. Downside risks emanate from weaker-than-expected EU activity in light of potentially increased U.S. protectionism under President-elect Trump, coupled with extended blocks on EU fund disbursements.

Panelist insight: ING’s Peter Virovacz and Kinga Havasi commented: “Looking ahead, it is certainly encouraging that consumption continues to grow at a good pace. However, the renewed decline in consumer confidence may indicate that this positive momentum could be broken. A turnaround in investment activity may still be some way off, given the slow recovery in order books, the still fragile fiscal situation and the deterioration in business confidence. New government programmes may bring some change to the overall picture, but in the absence of market-driven activity, this alone will not be sufficient to bring about a dramatic turnaround in investment.”

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