Economy in Brief

GDP growth in the European Monetary Union advanced by 1.5% in the third quarter at an annual rate, an acceleration from the second quarter’s 0.8% rise. It compares to gain of 1.2% at an annual rate in the first quarter. It is also the strongest quarterly rise since an increase of 2.4% at an annual rate in the third quarter of 2022. The year-over-year change is a gain of 0.9%, compared to 0.6% in the second quarter. That is the strongest year-over-year gain since the first quarter of 2023 when GDP rose by 1.4% year-over-year.

There are seven early reporting EMU members. Among these seven, four showed GDP advancing at a stronger pace in Q3 (Q/Q) than in Q2. Weaker growth was registered by Belgium and Italy with Portugal’s growth unchanged quarter-to-quarter.

Over the last six months, the large EMU economies have been holding back overall growth. The four largest EMU economies saw growth advance by 1.1% at an annual rate in 2024-Q3 compared to 2.5% growth in the rest of the EMU. In the second quarter, growth among the largest four economies also trailed growth in the rest of the monetary union. This is a switch from the usual standard. But year-on-year growth in the smaller economies is also higher in Q3 than in the largest four economies although that is the reverse of the previous three quarters.

Growth in the region has been weak for some time. The ranking of year-over-year growth rates on data back to 1997 shows all early reporting EMU members have rankings of growth in Q3 (year-on-year growth) below their historic medians (below a ranking of 50%) except Portugal and Spain. Portugal and Spain are exceptions with year-on-year growth rates that rank above 50% as well as above the ranking of the United States.

In the third quarter, only Italy has a negative quarter-to-quarter growth rate. Over four-quarters, only Germany and Ireland have negative quarter-to-quarter growth rates. Germany that does not have two quarters of negative (quarterly) growth back-to-back in the last three quarters has five consecutive quarters of negative year-over-year growth! However, the growth decline on this timeline has been modest. For Germany, this has been much more a period of pronounced economic stagnation than of economic decline.

Since 2011, the U.S. has had averages GDP growth about one percentage point (annualized) faster than the EMU. Since 2021, that difference has been the same on year-over-year comparisons, but it has become larger favoring the U.S. on quarterly comparisons. The median growth rate among early EMU reporters ranks at 40.2% while EMU growth ranks lower at 32.6% largely because the slower growing large economies have a greater weight in the EMU GDP construction than in the calculation of the median.

Germany's consumer climate measure for November from GfK rose to -18.3 form -21.0 in October. Despite improvement, the index had been as week as -18.6 as recently as August 2024. The climate gauge, despite improving, has a queue standing among all its historic values that places it in the bottom 12% of all past monthly results. The climate gauge is for November while the component values for the index are for October. The components were mixed with the economic expectations gauge weakening while income expectations improved along with the buying propensity index. The components ranked higher than the GfK index, with economic expectations ranked at their 35th percentile; income expectations are nearly neutral, ranked at their 47.5 percentile and the propensity to buy at its 31.9 percentile. Economic reading for the Germany economy has remained weak; Germany's PMI readings have eroded, but slowly, with manufacturing diffusion weak, logging a value of 40 and services just above its neutral level at 50.6. The consumer climate reading ranks as weak and ranked over the last four-and-one-half years. Germany’s manufacturing sector ranks as lower only 8% of the time while service has been weaker only 40% of the time. The economy clearly has a burden of weakness and is not showing much lift or support for the consumer sector. Meanwhile, the ECB’s rate cut process has stalled or at least slowed.

Consumer readings for Europe from fellow EMU members Italy and France as well as for the United Kingdom show weak results. These readings are up to date on the same timeline as GfK components, as of October. All of them weaken by small amounts month-to-month. However, they rank higher than the GfK German climate index. Italy’s consumer confidence measure has a 77.1 percentile standing on the same timeline as Germany’s GfK. France has a 51.5 percentile standing. The U.K. is below its median for that same period with a standing at its 33.2 percentile, in the lower one-third of its queue of data.