EUR/USD remained subdued after the release of disappointing Eurozone GDP data. According to the final estimate published by Eurostat on Thursday, the Eurozone economy stalled in the third quarter, increasing worries of a potential recession. The economic contraction was the result of changing inventory levels and weaker economic sentiment.
Gross Domestic Product (GDP) data
The third estimate for the quarter-on-quarter GDP growth rate for Q3 2023 came in at -0.1%. This was lower than Q2’s 0.1% but was in line with expectations. The third estimate for the year-on-year Eurozone GDP also came in at 0%, lower than Q3 2022’s 0.6%, as well as analyst estimates of 0.1%.
This was the first GDP decline since the last quarter of 2022. The drop was further affected by flat fixed expenditure. Exports were down by 1.1%, while imports decreased by 1.2%. On the other hand, households spent more, pushing consumption higher to 0.3%. Public spending was also up 0.3%.
Eurozone’s powerhouse and the bloc’s biggest economy, Germany, saw its GDP contract by 0.1%, reversing the second quarter’s 0.1% gain. Spain’s GDP rose by 0.3%, while Italy’s GDP was up 0.1%. France’s GDP drop by 0.1%. Malta’s GDP was up at 2.4%, with Poland at 1.5% and Cyprus at 1.1%. Ireland’s GDP took a dip and was down to -1.9%, followed by Estonia at -1.3% and Finland at -0.9%.
Discussing the release, Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “The Eurozone economy is going nowhere. The details show that a fall in inventories was the key drag on growth in the third quarter. This component shaved off 0.3 percentage points from quarter-on-quarter growth, offsetting boosts from consumer spending and government consumption. Looking ahead, we think consumer spending growth will slow a tad in the fourth quarter, mainly to mean reversion in France, before a return to growth in 2024 as real income growth recovers. Overall, we see GDP falling again in the fourth quarter, by 0.1%, before rebounding slightly in the first quarter, to 0.1%.”
Employment data
Eurostat also published labour data on Thursday. Eurozone’s Final Employment Change came in at 0.2% and 1.3% on a quarterly and yearly basis respectively. The 0.2% increase in employment in the third quarter across the Eurozone and EU is higher than the 0.1% improvement in the second quarter. The year-on-yearemployment rose to 1.3% in the Eurozone but was slightly lower than the previous quarter’s 1.4% increase.
Employment in Lithuania and Malta grew the most at 1.4%, followed by Spain at 1.3%. The biggest fall in employment was seen in Estonia, down to -0.9%, with Czech Republic declining -0.7% and Finland down to -0.6%.
What to expect for Q4 GDP
The upcoming release of inflation data and the European Central Bank (ECB)’s response and future interest rate decisions will be key when determining the GDP numbers for the final quarter of the year. Various ECB Board members have been very vocal about keeping the option for further rate hikes open, as inflation may take longer to go down to the 2% target. However, with inflation easing, the ECB’s stance may change soon. If the trend of lower inflation continues, and with the S&P Global stating that the Eurozone economy could be heading towards a soft landing in the next year, the ECB may prepare to cut rates earlier-than-expected.