Germany’s economy swerves recession as eurozone beats forecasts

Growth in the eurozone exceeded expectations in the third quarter and Germany avoided an anticipated recession, official figures show.
Growth across the 20 countries that use the euro jumped to 0.4 per cent from 0.2 per cent. In the European Union, which includes 27 countries, GDP increased by 0.3 per cent. Analysts had expected output to increase by 0.2 per cent.
GDP in Germany, the eurozone’s largest economy, exceeded analysts’ expectations for a contraction of 0.1 per cent and instead expanded by 0.2 per cent in the three months to September, up from a decline of 0.3 per cent in the previous quarter.
However, compared to the three months in 2023 German output dropped by 0.2 per cent, signalling that the economy has not improved at all this year after shrinking by 0.3 per cent last year.
According to the German government’s autumn economic projection, the economy will shrink by a further 0.2 per cent this year, leaving the country well behind its G7 counterparts. The International Monetary Fund this month raised its projection for UK GDP growth this year to 1.1 per cent from 0.7 per cent.
Greater competition from China in the automotive sector, higher energy prices after Russia’s invasion of Ukraine and political volatility caused by a divided three-way ruling coalition have constrained Germany’s output. Volkswagen, the car manufacturer, announced this week that it would close three plants and make thousands of workers redundant.
Carsten Brzeski, global head of macro at ING, the Dutch bank, said that the data “brings welcome relief to the battered German soul. However, it doesn’t take away the fact that the economy remains stuck in stagnation. At least it is not falling into a severe recession.”
The French economy accelerated faster than anticipated in the third quarter, thanks to a spending boost driven by the Paris Olympic Games in August. GDP expanded by 0.4 per cent, up from 0.2 per cent in the second quarter. On an annual basis, output grew by 1.3 per cent.
The Italian economy flatlined in the third quarter, underwhelming forecasts for a 0.2 per cent expansion, while Spanish GDP grew by 0.8 per cent, which was above projections.
The latest set of eurozone GDP figures indicate that growth in the common currency bloc has been stimulated by the European Central Bank’s decision to cut interest rates from an all-time high of 4 per cent.
Christine Lagarde, president of the ECB, has overseen three rate cuts so far this year, taking the deposit rate down to 3.25 per cent, with analysts expecting a further loosening of policy over the coming year.
Tomasz Wieladek, chief European economist at T Rowe Price, the asset manager, said that the ECB could cut borrowing costs by a larger 50 basis points to offset the damaging growth implications of Donald Trump launching punitive tariffs on European products if he wins the US presidential election next week.
Inflation across the eurozone fell sharply to 1.7 per cent in September from 2.2 per cent in the previous month.