After growing four times faster than the Eurozone in 2024 (3.2% as an annual average versus 0.8% respectively), the Spanish economy is set to maintain its dynamism throughout 2025. On the back of growth of 0.8% q/q in the last three quarters of the year, real GDP is set to continue its momentum, with expected growth of 0.7% q/q in Q1 2025, marking the seventh consecutive quarter of growth above or equal to 0.7%.
The US economy ended 2024 with its real GDP growing +0.6% q/q in Q4, a solid figure, though slightly down on the previous quarter (-0.2 pp). Household consumption (+1.0% q/q, +0.1 pp) was once again the main growth driver. The government also contributed positively, in contrast to private fixed investment (-0.1% q/q), despite the growth in residential investment and intellectual property products.
Les dynamiques de consommation et de production industrielle restent défavorables. Les ventes au détail (hors carburant) ont reculé de 0,5 % m/m en décembre et de 1,1 % au T4 par rapport au T3. La production industrielle qui a enregistré, entre septembre et novembre, trois mois de baisse successifs demeure sur une dynamique très difficile au démarrage de l’année 2025. Certes, le PMI manufacturier s’améliore (+1,3 point à 48,3) tout comme l’enquête mensuelle du CBI, mais l’enquête trimestrielle du patronat britannique chute à nouveau lourdement au T1
According to the Jibun Bank PMI survey, the Japanese economy has started 2025 in different directions. The manufacturing PMI fell to 48.7 in January (-0.9 pp, the lowest since March 2024), against a backdrop of a wider deterioration in production and new orders. By contrast, the services PMI accelerated according to the flash estimate, with Business Activity rising from 50.9 to 52.7.
Chinese economic growth accelerated in Q4 2024 (+1.6% q/q and +5.4% y/y), driven by strong export performance and a recovery in private consumption. These supporting factors should persist in early 2025, but economic growth will then resume its downward trend. Domestic demand is likely to remain fragile and the rise in US tariffs will be a significant negative shock to exports.
GDP figures for Q3 and recent economic data confirm the existing hierarchy among the major developed economies in terms of growth.
The PMI indicator for the manufacturing sector fell further into contraction territory in November, down from 46 to 45.2. In particular, the employment index hit its lowest level since August 2020 (45.3). The momentum in services also reversed, with the PMI indicator slipping back below 50 in November, to 49.2. In addition, consumer confidence deteriorated in November (-1.2 points to -13.7, according to the European Commission's flash index) and only marginally increased in the second half of the year.
According to the latest business climate and household surveys, the German economy is unlikely to rebound for some time yet. In November, the IFO business climate index (85.7) has returned to a level close to its level in September (85.4, its lowest level since May 2020), following a one-off rebound in October (86.5). This return to a low level is mainly explained by the services index in an uncertain political context, with the ousting of Finance Minister C. Lindner suddenly sending Germany into a pre-election period (early elections scheduled for 23 February 2025).
The French economy is deteriorating, as evidenced by the business climate and household confidence. The INSEE composite business climate index is down by one point a month, from 98 to 96 between September and November (long-term average at 100). This deterioration can be seen across all sectors, including services, underlining the fact that the cooling has spread throughout the economy.
L’activité économique italienne surprend à la baisse en cette fin d’année. Au troisième trimestre, la croissance est restée au point mort (0,0% t/t). Bien que les premiers indicateurs conjoncturels suggèrent qu’elle devrait être plus positive au T4 (0,4% t/t d’après nos prévisions), cela ne permettrait finalement pas à l’Italie de surpasser la zone euro cette année (croissance annuelle moyenne estimée à 0,5% en Italie, versus 0,8% en zone euro).
The end of the year is shaping up to be as dynamic as it has been all year in Spain. After posting even greater growth than expected in Q3 (0.8% q/q compared to an anticipated level of 0.6%), the first available data for Q4 unsurprisingly indicate that the Iberian country will remain at the head of the pack for the four major euro zone economies. According to our forecasts, real GDP should grow by a further 0.7% q/q in the final quarter of the year, bringing average annual growth to 3.0%.
Economic growth in the United States remained strong in Q3, with GDP growth of +0.7% q/q (stable compared to Q2). The acceleration in household consumption (+0.9% q/q, +0.2 pp) confirmed its role as a growth driver, while non-residential investment (+0.8% q/q) and government spending (+1.2% q/q) also made a positive contribution. Conversely, residential investment and net exports were a drag. In Q4, we expect growth to decline slightly to +0.5% q/q, which would bring the average annual growth rate to +2.7% (-0.2 pp) for 2024 as a whole.
The decline in the PMI indices is less pronounced in the United Kingdom than in the eurozone, but it has been well underway since this autumn: the composite PMI fell by 1.8 points to 49.9 in November, with a deterioration in both the manufacturing sector (-1.3 points to 48.6) and in services (-2 points to 50). In addition, industrial production hit a post-Covid low in September, on a three-month moving average basis. As with industry, the residential construction sector remains depressed, with the PMI down 4.9 points to 49.4 in November. This follows a further contraction in housing construction (excluding social housing) of 0.7% in Q3, after a decline of 2.2% q/q in Q2.
The Japanese economy slowed down in the third quarter, with GDP growth declining to +0.2% q/q (-0.3 pp) – a pace that is expected to continue in the fourth quarter. However, it is worth highlighting the acceleration in private consumption (+0.9% q/q, +0.2 pp). Conversely, investment figures were negative, both for the residential component (-0.1% q/q, -1.5 pp) and the non-residential component (-0.2% q/q, -1.1 pp). The largest negative contribution (-0.4 pp) came from net exports, with growth in imports (+2.1% q/q) significantly exceeding the exports one (+0.4% q/q).
According to recent economic data, the disparity in economic situations is confirmed, and even accentuated, between the United States, where growth is expected to remain strong in Q3 (0.7% q/q in Q3, according to our forecast) and other regions, notably the Eurozone, where the recovery is seemingly running out of steam (0.2% growth in Q3, according to our forecast and our nowcast).
The gradual improvement in household confidence indices in the Eurozone (financial situation and purchase intentions), supported by falling inflation, is still not leading to a rebound in consumption. Retail sales have been stable for a year, even though a slight rise of 0.2% m/m was recorded in August. Motor vehicle sales, which often display a significant change from one month to the next, rose by 8.2% m/m in September, but were down to their lowest level in three years on a three-month moving average basis.
The business climate in Germany (PMI and IFO surveys) deteriorated steadily from its peak in May to September. The relative optimism of the spring has ebbed away, as illustrated in particular by the deterioration in the PMI for export conditions (standing at 49.8 in September, compared to 51.9 in May). As a result, while our forecast for Q3 growth remains at 0.1% q/q, the German government has highlighted the risk of another negative figure (following the rate of -0.1% q/q in Q2 already) and therefore of a recession. Overall, GDP is likely to be close to its level recorded at the end of 2021 (i.e. three years of stagnation).
The Olympic Games were a brief positive interlude, which has now come to an end, as shown by the services PMI, which peaked at 55 in August in the midst of much more lacklustre performances. However, this Olympic Games effect should have buoyed growth in Q3 (0.4% q/q, according to our scenario). Our nowcast is a little lower (0.3%) and highlights the risk that, excluding the Olympic Games effect (estimated at 0.2% by INSEE), the French economy slowed in Q3 (after 0.2% q/q growth in Q2). It is likely to slow further in Q4, judging by the recent deterioration in the services sector (PMI at 48.3 in October after 49.6 in September) and in industry (production PMI down from 44 to 42.5).
Weakness in manufacturing activity is still one of the black spots in the Italian economic situation. Industrial production remained on a negative trend in August (-0.1% 3m/3m), and purchasing managers in the manufacturing sector continued to indicate a deterioration in activity in September (manufacturing PMI at 48.3; -1.1 points over one month), mainly due to falling demand (with the new orders component down 3.1 points, standing at 45.7).
Business sentiment continued to improve in September. The PMI recorded its tenth consecutive month of growth (56.3; +2.7 points over one month). It was driven by a dynamic services sector (57.0; +2.4 points), buoyed by continued strong tourism activity (+11.2% y/y YTD in tourist arrivals), and by a recovery in manufacturing activity (53.0; +2.5 points). Although industrial production continued to decline in August (-0.2% 3m/3m), the outlook appears more favourable, judging by the rise in business leaders' expectations for their production over the coming months (11.4; +6.2 points, according to the European Commission's economic sentiment survey).
U.S. economic growth, a priori, remained robust in the third quarter. The Atlanta Fed’s GDPnow estimates GDP growth at +0.8% q/q (+0.1pp compared to Q2 2024). Household consumption remains the principal driver, as illustrated by the acceleration of the retail sales control group in September (+0.7% m/m, +0.4pp). Activity in services improved in the same month in view of the jump in the ISM non-manufacturing index to 54.9 (+3.4pp). On the other hand, the ISM manufacturing index remained in contraction territory, stable at +47.2 despite the improvement in the “output” component (+5.0pp).
While manufacturing activity in the United Kingdom, like elsewhere in Europe, is in a difficult state, the situation is less worrying across the Channel. Industrial production rose by 1.1% m/m in August, returning to its April levels. The year-on-year fall in output has almost completely subsided (-0.3% y/y). This situation is in line with the manufacturing PMI for October, which was down on the previous month (-1.2 points, to 50.3), but is still in expansion territory. The services PMI fell by 0.6 points to 51.8, and therefore also contributed to the decline in the composite index, which dropped by 0.9 points to 51.7 in October.
Activity surveys were negative in October. Jibun Bank’s preliminary survey reported a decline in the manufacturing PMI to 49.0 (-0.7pp). The decline was more pronounced for activity in the services sector, with the corresponding PMI losing 3.8pp to 49.3, contracting for the first time since June. According to the Bank of Japan’s (BoJ) quarterly Tankan survey, the overall business climate improved slightly in Q3, but remained stable for large manufacturing companies. We expect growth to fall to +0.3% q/q in Q3 (-0.4pp compared to Q2 2024), due to the dissipation of the technical upturn that had buoyed it in the previous quarter.
While recent economic data across the board suggest that growth was strong in Q2, leading indicators (business climate, household confidence) were more mixed in June, pointing to a more difficult Q3. This is particularly the case in the US, where even the ISM non-manufacturing index deteriorated sharply in June, while in Japan and the UK, growth should return to a more normal level after a very favourable Q2 (and benefiting from rebound effects in Japan, after a more difficult Q1).
The difficulties in the Eurozone manufacturing sector are intensifying. Industrial production fell again in May, by -0.6% m/m (-0.8% m/m for the manufacturing index). The deterioration in the PMI indicators for the euro area in June does not bode well for Q3, with a fall in the manufacturing index (-1.5 points to 45.8) and a decline in all the subcomponents (production, employment, new orders, stocks of purchases, delivery times). The input price index (which is not included in the calculation of the aggregate manufacturing index) is back above the expansion zone for the first time since February 2023. This is consistent with the trend in producer prices, for which the monthly decline has been slowing for several months and is now close to zero
