Economy rebounds in the fourth quarter

Economy exits recession in Q4: Economic activity bounced back in Q4, increasing 1.7% on a seasonally adjusted quarter-on-quarter basis following contractions of 0.1% in Q3 and 0.2% in Q2. Q4’s reading marked the best result since Q2 2023 and surpassed market expectations. On an annual basis, economic growth improved to 3.0% in Q4, following the previous quarter's 2.2% rise and marking the strongest result since Q1. Looking at 2024 as a whole, GDP growth moderated to 3.2% from 2023’s 5.1%— remaining below the prior 10-year average of 4.8%—as higher interest rates and persistent price pressures dampened momentum.

Domestic demand drives the recovery: The sequential improvement was chiefly driven by stronger domestic demand. Private consumption increased 4.3% in Q4 (Q3: -0.2% qoq s.a.) amid a tighter labor market and moderating inflation. Moreover, public spending saw a 0.2% expansion in Q4 (Q3: +0.1% qoq s.a.). In addition, fixed investment growth picked up to 3.9% in Q4, following the 2.8% increase logged in the prior quarter. On the external front, exports of goods and services fell 3.3% on a seasonally adjusted quarterly basis, which contrasted the third quarter's 3.1% expansion. Conversely, imports of goods and services bounced back, growing 5.2% in Q4 (Q3: -1.1% qoq s.a.).

Momentum to soften in 2025: Our panel expects GDP growth to moderate in Q1 and to slow from 2024’s level in 2025 as a whole. Receding real wages and higher unemployment will hamper household spending. Moreover, still-high interest rates will pose a headwind to investment activity. Escalating tensions in the Middle East are a downside risk.

Panelist insight: Analysts at the EIU commented on the outlook: “Assuming that the current relatively tight policies continue, economic activity is likely to remain subdued at least until the second half of 2025. Although economic activity will be supported by easing inflation and nominal interest rates, as well as an improved global outlook, we assume that the central bank will reduce interest rates only slowly. Meanwhile, public expenditure growth will be constrained as the government reverts to a more prudent approach to the public finances.”

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