Quarterly GDP growth dropped from 0.6% to 0.4% in the third quarter, but remains well above trend. Despite a worsening energy shock, the economy continues to be resilient.
Despite a worsening energy shock, the Eurozone economy continues to show resilience.
Should it be this strong?
The Eurozone economy seems to have shrugged off the Middle East crisis. In fact, growth has accelerated markedly since the war began at the end of February, a seemingly counterintuitive development for a major energy importer.
Then again, the impact on inflation has been mild so far and real wage growth is still positive. Industry is increasingly feeling the effects of higher energy costs, but is also benefiting from the tech boom and increased defence and infrastructure spending.
Ireland experienced another strong quarter with 5.5% growth, although the figure was heavily influenced by multinational accounting activity and is therefore less indicative of underlying economic conditions.
Beyond Ireland, third-quarter growth was less impressive
Most large Eurozone economies experienced weaker quarter-on-quarter growth in 3Q, with France contracting by 0.1% and Italy stagnating. Spain and the Netherlands still experienced strong growth of 0.6% (down from 0.7% in the previous quarter). Germany – happy to still grow at all – did see growth drop from 0.3% to 0.2%. Without Ireland, the eurozone growth rate came in at a decent 0.2% but has now dropped for three consecutive quarters.
Can the Eurozone defy gravity for much longer?
With energy prices still rising steadily, including gas prices, the winter months will see an additional growth challenge. On top of that, interest rates are now higher and businesses indicate less appetite for borrowing as a consequence, according to the ECB bank lending survey.
The Eurozone economy has continued to experience decent growth for now, but these factors will still weigh on growth. Taking the Irish volatility out of the mix, a modest growth rate is what can be expected in the months ahead.
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