Eurozone Growth Surges to Two-Year High Amid Stabilizing Economic Conditions

The third quarter of 2024 saw a significant performance within the eurozone as its economy grew by 0.4%, which was higher than what most economists had expected at 0.2% growth. This accomplishment stands after a 0.3% increase in the previous quarter, thus representing a healthy outlook for the region. One of the sharp economic growth countries was Spain as it registered a growth of 0.8%, while Ireland, a country with a lot of foreign aid, growing 2% albeit with less predictability. 

Most pessimistic forecasters were surprised to learn that the euro area’s largest economy recorded a very low and positive growth of 0.2% which protected its economy from recession that several analysts had predicted. Though this was good news, economists from pointing out the growth in the Germany’s economy, still stressed that ” it is nearly the same size as it was when the pandemic began” due to the weakness in its important manufacturing industry. 

The survey’s outlook is slightly more optimistic regarding the business activity and consumer morale in the euro area, with the expectation of an upward trend in the next month or two dues to the cuts in interest rates and easing inflation rates. The European Central Bank (ECB) has made three rate cuts so far in the year 2024, with the last one done in October which was after the headline inflation rate dropped to 1.7%. ECB’s move was primarily informed by the re-emergence of weak growth indicators in the region. 

There is a general consensus among market participants that the ECB will further reduce the rate by 25 basis points during its meeting coming up in December, owing to the fact that the current deposit facility rate is at 3 25%. 

Christine Lagarde, the president of the European Central Bank, also affirmed that a decrease in rates was debated within the Governing Council some time back. However, expectations are building up towards a more aggressive cut of half a percentage similar to what the US federal government announced in September. 

Analysts are, however, still wary despite the positive growth figures. “I do not think that the stronger growth will dissuade the ECB from making the proverbial leap and hiking rates in December,” said Franziska Palmas, a Senior Europe Economist at Capital Economics. She also remarked that eurozone GDP growth would slow in the last three months of the year owing to the troubles in the manufacturing sector in Germany and the weakening building activity in Italy. 

On the contrary, European Economist at Kamil Kovar’s Research Forum at Moody’s Analytics opined that the recent GDP numbers may have implications for higher headline inflation, thereby reducing likelihood of further aggressive policy easing. With euro zone releasing its inflation print for October in the coming days, Kovar argued that the current narrative of growth should not raise fears of a recession, citing the performance ‘solid’ in Spain and particularly France. 

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