EZ Q3 GDP to Show Ongoing Resilience
GDP is expected to grow 0.2% q/q in Q3 following a large quarterly gain of 0.6% in Q2, a figure that had been boosted by Ireland’s significant expansion of 10.2% q/q - driven largely by a surge in multinational-dominated sectors, led by Information & Communication and high-value industry. Once Ireland is excluded Eurozone growth in Q2 was 0.3%. We expect a similar number for Q3.
We expect Q3 growth to be a tad higher than consensus, possibly around 0.3% q/q, given that sentiment data was still relatively upbeat in the quarter despite weaker consumer confidence and higher borrowing costs. The Euro-coin leading indicator (Figure 1) was also still consistent with ongoing expansion.
Tighter financial conditions and concerns over France only emerged towards the end of Q3. Given the volatility in Ireland’s GDP, analysts might want to focus on ex-Ireland Eurozone growth to get a better picture of underlying growth in the region. Prior to the release of the eurozone growth rate, the Big 4 countries (Germany, France, Italy and Spain) will also release their GDP numbers with consensus expecting the first 3 countries to growth just 0.1% while Spain is expected to increase by 0.6%.
The Eurozone economy has remained resilient despite several headwinds in recent months (Drought, energy shock, rising inflation) but this has been cushioned by households saving less to sustain spending, governments increasing defence expenditure, the deployment of remaining Next Generation EU funds and stronger exports.
Friday also sees the release of flash national inflation data with further increases expected in the headline annual rate. Steady growth and rising inflation will embolden the ECB to hike one more time in December followed by a long pause.
Figure 1: Euro-Coin Leading Indicator (Q/Q%) and Actual Eurozone Real GDP Growth (Q/Q%)
Source: Banca D'Italia/CE