GDP growth shoots up in Q4

Portugal claims the title of the Euro area’s top performer: A second national accounts release confirmed that GDP growth rose to 1.5% on a seasonally adjusted quarterly basis in Q4, outpacing Q3’s 0.2% rise and marking the best print since Q1 2022. As a result, the economy was the fastest growing in the Euro area in Q4. On an annual basis, economic growth climbed to 2.8% in Q4 from the previous quarter's 1.9%, marking the best result since Q2 2023. Still, the economy lost momentum overall in 2024, decelerating to 1.9% from 2023’s 2.5%.

Net trade and private spending spearhead the upturn: Net trade contributed 1.0 percentage points to sequential growth of GDP in Q4, improving from Q3’s 1.2 percentage points detraction. Exports of goods and services rebounded 0.7% in Q4 (Q3: -0.2% qoq s.a.), while imports of goods and services shrank 1.4% in Q4 (Q3: +2.4% qoq s.a.), the sharpest decrease since Q2 2021. On the domestic front, dynamics were mixed. Private spending growth shot up to 2.9% in Q4 (Q3: 0.8% qoq s.a.), marking the best result since the end of the post-pandemic recovery; household budgets benefited from interest rate cuts, surging real wage growth, tax cuts and pension hikes. Less positively, government expenditure growth edged down to 0.2% in the fourth quarter from the prior quarter’s 0.3%. Moreover, fixed investment contracted 1.7% in Q4 (Q3: +2.6% qoq s.a.). In particular, the quarter saw weaker capital outlays in non-transportation machinery and equipment. As a result, domestic demand contributed 0.6 percentage points to GDP growth in Q4, deteriorating from Q3’s 1.4 percentage points contribution.

Economy to outperform Euro area average in 2025: Our panelists expect the economy to be decelerating in Q1 2025 following Q4 2024’s stellar performance. Still, sequential growth should remain above the Euro average through Q4 2025. In 2025 as a whole, our Consensus is for the economy to broadly match its past-decade growth average of 2.1%: Fixed investment will underpin the upturn, gaining momentum on the back of the ECB’s ongoing monetary policy easing cycle.

Panelist insight: Analysts at the EIU commented on the outlook risks: “Challenges to real GDP growth remain. Relatively strong domestic demand will bolster imports, preventing a higher contribution to growth from net exports. A larger rise in consumer spending in 2025 will be prevented by employment growth being concentrated in low-paying sectors such as tourism and hospitality. […] Industry faces headwinds from a drop in external demand due to potential US import tariffs, as well as high wage growth in manufacturing.”

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