Eurozone GDP grows stronger than expected

The euro weakened slightly over the past week and is expected to continue weakening this week, under pressure from a stronger US dollar and political turmoil in Germany. Furthermore, the re-election of Donald Trump as US president has raised concerns in Europe about potential economic impacts, including possible import tariffs. Investors expect the European Central Bank (ECB) to cut interest rates by 25 basis points in December.

Household lending in the eurozone increased by 0.7% year-on-year, rising to €6.9 trillion in September. Meanwhile, lending to businesses grew by 1.1%, reaching €5.16 trillion, indicating the economy's ability to adapt. Additionally, household spending capacity has not diminished significantly.

Eurozone GDP expanded by 0.4% in Q3, and on a year-on-year basis, it grew by 0.9%, marking the strongest growth in two years. This follows a 0.2% growth in Q2 and exceeded the expected 0.2% growth. The German economy returned to growth with a 0.2% expansion, avoiding a technical recession. France's GDP continued to perform well, growing by 0.4%, up from 0.2% in Q2, while Spain's economy remained strong, expanding by 0.8%. Overall, most countries in the eurozone posted solid growth in Q3, leading to forecasts of a 0.8% growth for the eurozone's GDP this year, supported by easing interest rate pressures.

Inflation in the Eurozone rose to 2% year-on-year in October, up from 1.7% in September. This increase toward the end of the year is expected to be partly due to the rapid decline in energy prices from the previous year. Nonetheless, the inflation rate has now reached the European Central Bank's target. Energy costs decreased at a slower rate of 4.6%, while service sector inflation remained steady at 3.9%. Core inflation, which excludes energy, food, and beverages, held steady at 2.7%, marking the lowest level since 2022.

The consumer confidence index in the eurozone increased by 0.4 points from the previous month to -12.5 in October, the highest level since 2022. However, it remains below the long-term average. The increase in consumer confidence was driven by an improved outlook on household financial situations, both current and future. At the same time, consumers' expectations for the overall economy became more positive.

The economic sentiment indicator in the eurozone slightly decreased to 95.6 in October from 96.3 in the previous month. This decline was mainly due to lower confidence in the industrial sector, both in manufacturing and services, amid falling production capacity and new orders. However, the services sector maintained a more positive outlook, supported by stable new orders.