The third quarter of 2024 saw significant performance within the eurozone as its economy grew by 0.4%, which was higher than most economists’ expectations for growth of 0.2%. This achievement stands after a 0.3% increase in the previous quarter, thus representing a healthy outlook for the region. One of the most advanced countries in terms of economic growth was Spain as it registered a growth of 0.8%, while Ireland, a country with a lot of foreign aid, grew by 2% although it was unpredictable.
Many pessimistic forecasters were surprised to learn that the euro zone’s largest economy recorded a very low and positive 0.2% growth that protected its economy from the recession predicted by several analysts. Although this was good news, economists pointing to the growth of the German economy, still emphasized that it is “almost at the same level as it was at the beginning of the pandemic” due to the weakness in its important manufacturing sector.
The survey’s outlook is more optimistic about business activity and consumer sentiment in the euro area, as the trend is expected to pick up in the next month or two due to lower interest rates and lower inflation rates. The European Central Bank (ECB) has made three rate cuts so far in 2024, with the last one in October after inflation dropped to 1.7%. The ECB’s move was largely informed by the resurgence of weak growth indicators in the region.
There is a general consensus among market participants that the ECB will cut the rate again by 25 basis points during its meeting in December, because the current rate of deposit is at 3 25%.
Christine Lagarde, the president of the European Central Bank, also confirmed that the rate cut was discussed within the Governing Council some time ago. However, expectations are growing for a stronger half-percentage-point cut similar to what the US federal government announced in September.
However, analysts are still cautious despite the positive growth figures. “I don’t think strong growth will stop the ECB from hiking rates in December,” said Franziska Palmas, Senior Europe Economist at Capital Economics. He also noted that eurozone GDP growth will slow in the final three months of the year due to problems in the manufacturing sector in Germany and weak construction activity in Italy.
In contrast, the European Economist at Kamil Kovar’s Research Forum at Moody’s Analytics suggested that the latest GDP numbers may contribute to a sharp increase in inflation, thereby reducing the chances of a further easing of policy. With the euro set to release its October inflation report in the coming days, Kovar argued that the current growth story should not raise fears of a recession, citing ‘strong’ performance in Spain and particularly France.
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