Eurozone GDP Growth Slightly Better Than Expected

The eurozone economy grew by 0.2% QoQ in the third quarter. While we do expect a gradual acceleration of growth over the coming year, we remain cautious about marking this as the start of a growth spurt, given domestic and global uncertainty

GDP continues to show modest growth in the eurozone, as GDP growth of 0.2% was slightly better than anticipated. The mood about the economy seems decently optimistic at the moment, despite ample downside risks clearly weighing on the outlook. Domestic policy risks relate to government budgets and reform agendas, while international risks centre on a global slowdown and trade policy.

By country, significant differences emerged in the third quarter. The French economy surprised to the upside, growing by 0.5% quarter-on-quarter despite political turmoil. Investments and exports jumped in France, in part because of a strong aerospace sector, which tends to see volatile production. The Netherlands also beat expectations with a strong 0.4% growth rate, while Germany and Italy both disappointed with 0% growth. Spanish growth continues to beat the eurozone average, but did come down from 0.8 to 0.6%.

Surveys about the economy have become more upbeat despite global uncertainty. That certainly seems to have been the case in October, as today’s economic sentiment indicator jumped from 95.6 to 96.7, after the PMI also revealed optimism. We do, however, remain cautious about whether this is the start of a sustained growth acceleration.

With political uncertainty continuing in France, for example, the question remains whether the strong French GDP reading can be sustained. And Germany, of course, continues to struggle to make stimulus plans turn into GDP growth. With the largest eurozone economy still sluggish, broad GDP acceleration is particularly challenging.

For those looking at this from a glass-half-full perspective, the eurozone has remained far from recession despite all the global and domestic turmoil. But the half-empty take would be that evidence of a real sustained growth acceleration on the back of extra investment promises is not there yet.

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