GDP growth unchanged in Q3

Economic growth remains subdued by Euro area standards: A second national accounts release confirmed that seasonally adjusted GDP growth was broadly steady at Q2’s 0.2% on a quarterly basis in Q3, falling short of the Euro area’s 0.4%. The reading reflected a stronger contribution from the domestic sector, which largely offset a sharper deterioration in net trade. On an annual basis, economic growth ticked up to 1.9% in Q3 from the previous quarter's 1.6%, marking the best result since Q4 2023.

Improving private spending offsets broad slowdown: Domestically, private spending growth edged up to 1.2% in seasonally adjusted quarter-on-quarter terms in the third quarter (Q2: +1.0% qoq s.a.), marking the best reading since Q4 2023; a faster rise in real wages, healthier consumer sentiment and ongoing monetary policy easing likely underpinned the improvement. Conversely, fixed investment rose at a softer quarterly clip of 0.9% in Q3 compared to 1.7% in the prior quarter. In particular, weaker capital outlays in transportation equipment and softer momentum in construction outweighed a faster increase in other machinery and equipment. Meanwhile, government spending growth was stable at Q2’s 0.3% in Q3. On the external front, net trade detracted 1.1 percentage points from overall GDP growth in Q3, compared to Q2’s 0.7 percentage point detraction. Exports of goods and services contracted 0.4% in Q3, marking the worst result since Q3 2023 (Q2: +1.3% qoq s.a.). Meanwhile, imports of goods and services growth slowed to 1.9% in Q3 (Q2: +2.9% qoq s.a.).

Economy to outperform Euro area average in 2025: Our panelists expect sequential economic growth to be strengthening in Q4 and to broadly stabilize in 2025. As a result, our Consensus is for the economy to pick up pace in 2025 as a whole from 2024 and outperform the Euro area average of 1.1%. The upturn is forecast to come on the back of fixed investment growth more than doubling, outweighing slower expansions in private spending and exports.

Panelist insight: Analysts at the EIU commented: “Economic activity will be supported by slowing price inflation and still-strong nominal wage growth, helping to improve consumer purchasing power; gradually falling interest rates, which reached a 23-year high in the euro area in 2023; and a gradual recovery in the external environment. In addition, Portugal's tourism sector (which accounted for about 17% of GDP in 2019) is expected to continue its strong performance, albeit with a lower impact on the economy than in post-pandemic years, while EU funds will support further investment growth.”

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