Euro-zone GDP (second estimate), Employment (Q3) - Capital Economics
European Economics

Euro-zone GDP (second estimate), Employment (Q3)

European Data Response
Written by Andrew Kenningham
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While the second estimate of Q3 GDP for the euro-zone was unchanged, and Germany narrowly avoided a technical recession, we think that the cyclical downturn in the region still has further to run. Our forecast is for GDP in the euro-zone to increase by only 0.5% next year.

Germany avoids a technical recession, for now

  • While the second estimate of Q3 GDP for the euro-zone was unchanged, and Germany narrowly avoided a technical recession, we think that the cyclical downturn in the region still has further to run. Our forecast is for GDP in the euro-zone to increase by only 0.5% next year.
  • The second estimate of third-quarter GDP in the euro-zone as a whole was unchanged from the first estimate, and showed the economy expanding by 0.2% q/q. Eurostat has not yet published an expenditure breakdown, so the focus today has been on the national GDP figures for Q3 released by Germany, the Netherlands and Portugal.
  • The good news is that the 0.1% q/q expansion in Germany means that it averted a technical recession. Indeed, this was better than the consensus forecast for a 0.1% contraction, but in line with our own forecast. The press release notes that the increase came mainly from household and government consumption and that exports also rose. In contrast, imports were flat and investment in equipment and machinery contracted.
  • But it’s too early to sound the all-clear for Germany. The Q3 recovery follows a downwardly-revised contraction of 0.24% in Q2. And business surveys for October, such as the Composite PMI, suggest that the economy may well contract in Q4. (See Chart 1.) With politicians unlikely to loosen fiscal policy significantly, we suspect that a recession in Germany has been postponed rather than avoided.
  • Meanwhile, the Netherlands has continued to grow at a decent pace, recording a third successive quarterly expansion of 0.4%. But Portugal seems to be succumbing to the wider European downturn, as its growth rate slowed from an upwardly-revised 0.6% in Q2, to only half that pace in Q3. (See Table 1.)
  • Finally, note that employment in the euro-zone increased by only 0.1% in Q3. This, along with declining wage inflation, is likely to cause household spending growth to lose further momentum next year, contributing to a deceleration in domestic demand.

Chart 1: German GDP & Composite PMI

Sources: Refinitiv, Capital Economics

Table 1: Employment & GDP (% q/q)

Employment

GDP

Euro-zone

Euro-zone

Germany

Netherlands

Portugal

Q4 2018

0.3

0.3

0.2

0.5

0.4

Q1 2019

0.3

0.4

0.5

0.4

0.6

Q2 2019

0.2

0.2

-0.2

0.4

0.6

Q3 2019

0.1

0.2

0.1

0.4

0.3

Sources: Eurostat, Refinitiv

Andrew Kenningham, Chief Europe Economist, +44 20 7808 4698, andrew.kenningham@capitaleconomics.com