GDP growth slows in the third quarter

Second release confirms that economy decelerated: According to a second estimate, the economy shifted into a lower gear in Q3: GDP growth waned to 2.7% year on year from 3.2% in the second quarter, matching the flash estimate. On a seasonally adjusted quarter-on-quarter basis, economic activity declined 0.1% in Q3, contrasting the previous period's 1.2% growth and marking the largest drop since Q2 2023.

Both domestic demand and external sector lose steam: On the domestic front, the moderation in annual growth was broad-based. Private consumption growth fell to 0.3% in Q3, marking the weakest expansion in a year and surprising markets on the downside, as demand for both goods and services cooled (Q2: +4.6% yoy). Additionally, government spending growth slowed to 4.5% (Q2: +11.5% yoy). Lastly, fixed investment came to a near halt, slowing to 0.1% from Q2’s 3.2% rise; private investment likely declined more than in Q2, while public investment cushioned momentum amid rising military outlays. On the external front, exports of goods and services contracted 0.7% in Q3 (Q2: +2.9% yoy), marking the worst reading since Q2 2020. In addition, imports of goods and services growth softened to 1.9% in Q3 (Q2: +5.7% yoy), marking the worst reading since Q4 2023. As a result, the contribution of net trade to GDP growth weakened from Q2.

GDP outlook: Our panelists see annual GDP growth strengthening from Q3’s level in Q4 and further throughout 2025. As such, full-year growth next year will outpace 2024’s projection and inch closer to the prior 10-year average of 3.8%. Accelerations in fixed investment and exports will outweigh softer momentum in private and public spending. Risks are tilted to the downside and include unexpectedly weak EU activity due to surging U.S. protectionism under President-elect Trump.

Panelist insight: ING’s Rafal Benecki and Adam Antoniak said: “In 2025 we expect growth to accelerate to about 3.5% due to, among other things, stronger fixed investment thanks to projects financed from EU structural funds and the Recovery and Resilience Fund. Still, there is a lot of uncertainty surrounding the scale of the rebound in fixed investment and household consumption next year.”

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