Eurozone Economy Expands by 0.4% in Q3 2024 on German Surprise

Eurozone Economy Grows by 0.4% in Q3 2024

On Wednesday, October 30, the Eurozone economy was under the spotlight, with preliminary Q3 2024 GDP numbers in focus.

The Eurozone economy expanded by 0.4% in Q3 2024, up from 0.2% growth in Q2 2024.

According to Eurostat,

• Ireland (+2.0%), Lithuania (+1.1%), and Spain (+0.8%) reported the largest growth among Eurozone member states when compared to the second quarter.
• Year-on-year, the Eurozone economy expanded by 0.9% in Q3 2024, up from 0.6% in Q2 2024.

More details will be available in the second estimate report, out in November.

Implications for ECB Monetary Policy

Earlier concerns about the Euro area economy previously fueled speculation about a possible 50-basis point December ECB rate cut. However, the stronger-than-expected Q3 GDP numbers could reduce bets on more aggressive ECB rate cuts to support the Euro area economy.

A pickup in economic activity could boost job creation, consumer confidence, and private consumption. Stronger private consumption could also support the economy further as it contributes over 50% to GDP.

German Economy Avoids Recession, Expands by 0.2%

Before the Eurozone GDP numbers, Germany’s economic growth figures set the tone for the Wednesday session. The German economy unexpectedly expanded by 0.2% in Q3 2024 after contracting by 0.3% in Q2 2024.

Notably, government and household consumption expenditure contributed to the Q3 2024 economic recovery. Household consumption proved crucial for Germany to avoid a technical recession.

EUR/USD Reaction to the Eurozone GDP Report

Before the Eurozone GDP numbers, the EUR/USD fell to a low of $1.08116 before climbing to a pre-Eurozone GDP report high of $1.08590.

However, in response to the Eurozone GDP figures, the EUR/USD rose to a high of $1.08412 before dropping to a low of $1.08368.

On Wednesday, October 30, the EUR/USD was up 0.19% to $1.08388 as investors reacted to Germany avoiding a technical recession.

German Inflation Report to Test ECB Rate Expectations

Later in the Wednesday session, German inflation figures also require consideration. Economists expect the annual inflation rate to rise from 1.6% in September to 1.8% in October. A larger-than-expected increase to 2.0%, the ECB’s target range, could further dampen bets on a 50-basis point December ECB rate cut. The ECB hawks may even attempt to talk down a 25-basis point rate cut.

A pickup in inflationary pressures and private consumption expenditures’ contribution to Germany’s economic rebound could draw the ECB’s scrutiny.

Beyond the economic data, markets may also consider a potential Trump second term and its implications for the Euro area economy. Punitive tariffs on Euro area goods could take the shine off today’s GDP numbers.