Eurozone Economy Expands by 0.4% in Q3 2024 but US Tariff Threat Remains

Eurozone GDP and Labor Market Data Offers Little Market Comfort

On Thursday, November 14, Eurozone GDP and labor market data drew scrutiny as investors considered a potential 50-basis point rate cut by the ECB in December.

The Eurozone economy expanded by 0.4% quarter-on-quarter in Q3 2024, aligning with the preliminary GDP estimate. This followed a more modest 0.2% growth in Q2 2024.

According to Eurostat, Ireland topped the Eurozone’s GDP table, with a quarterly growth of 2.0%. Cyprus and Lithuania joined Ireland in the top three, with their economies seeing growth of 1.0% and 1.1%, respectively. In contrast, Italy’s economy stalled, and Latvia’s GDP contracted by 0.4%.

The GDP numbers provided some optimism, and the labor market data could also ease immediate concerns about private consumption and the economic outlook.

Employment across the Eurozone increased by 0.2% quarter-on-quarter in Q3 2024 after a 0.2% rise in Q2 2024. However, the employment data may offer short-lived comfort if Trump imposes tariffs on Eurozone goods. Tariffs on Eurozone goods could dampen demand, weaken the labor market, and curb private consumption, which accounts for over 50% of the Eurozone GDP.

US Tariff Threats Remain a Significant Economic Headwind for the Eurozone

Despite the pickup in economic activity, potential US tariffs could significantly impact the Eurozone’s economic recovery. Tariffs may target the Eurozone’s auto sector and potentially luxury brands.

Daniel Kral, European Macro Specialist at Oxford Economics, highlighted the vulnerability of the Eurozone’s all-important car industry, stating:

“The EU (and especially German) car industry is squeezed between dwindling sales and excess capacity in China, a protectionist US, and tighter climate regulations at home. It will enter a world of pain if the incoming US administration imposes sizeable tariffs.”

Kral’s assessment aligns with Bundesbank President Joachim Nagel’s caution. President Nagel warned the German economy could take a 1% hit if Trump rolls out tariffs.

ECB Monetary Policy Impact Analysis

The Q3 2024 GDP and employment figures could dampen investor bets on a 50-basis point December ECB rate cut. However, the potential for US tariffs could adversely impact the Eurozone economy and labor market conditions, discounting the influence of the Q3 data on the ECB’s rate path.

EUR/USD Reaction to Eurozone Economic Indicators

Ahead of the Eurozone data release, the EUR/USD briefly climbed to a high of $1.05683 before sliding to a low of $1.05178.

However, the EUR/USD reacted to the economic indicators, rising to a high of $1.05206 before dropping to $1.05116.

As of Thursday, November 14, the EUR/USD was down 0.47% to $1.05128.