Belgian economic growth remains somewhat below but close to trend. Our nowcast for the 4th quarter indicated 0.3% QoQ growth. Domestic demand will have to continue to offset a negative contribution from net exports at a time when declining demand for specific products and a challenging external environment weigh down on the trade balance. Whereas, last year, firms’ investment spending took on the role of growth engine, private consumption is now slowly returning to center stage. A pressing need for fiscal consolidation should hold back further increases in government outlay.
The UK’s policy mix (a combination of fiscal and monetary policies) is expected to be more accommodative in 2025. Its positive effects will be limited, however, given the very gradual fall in interest rates and the introduction of more restrictive budgetary rules. After GDP growth in the third quarter of 2024 fell short of expectations (+0.1% q/q), activity is expected to strengthen in Q4 (+0.3% q/q) before stabilising around this level in 2025 (between 0.3% and 0.4% q/q). The United Kingdom, which has a trade balance almost in equilibrium with the United States and exports mainly services to the US, also seems to be in a better position than its European neighbours to avoid the rise in US tariffs.
The Japanese economy continues to be characterised by weak growth, which slowed in Q3. The positive momentum in inflation and wages is in line with the Bank of Japan's objectives. This picture should enable the Bank to continue its gradual monetary tightening. However, domestic political developments (general elections resulting in a loss of political strength for the government), as well as external ones (Donald Trump's victory) are not helping stability.
The year 2024 is coming to an end, but political and economic uncertainties persist and are expected to continue into 2025, albeit in new forms. Donald Trump’s economic agenda is known. On the other hand, the measures that will actually be implemented, their timing and their economic impact are among the great known unknowns of 2025. In any case, uncertainty itself is expected to be a major drag on growth next year. A convergence of growth rates between the US and the Eurozone is expected in the course of 2025, via a slowdown in US growth. The latter would suffer from the inflationary effects of Trumponomics and the resulting more restrictive monetary policy, with the Fed's expected status quo on rates throughout 2025
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Since 2019, private sector debt in emerging countries as a whole has risen as a percentage of GDP, while at the same time private sector debt in advanced countries has fallen. However, a country-by-country analysis shows that China alone is responsible for this increase and that, even excluding China, debt ratios show positive aggregation effects. In fact, on the basis of median ratios and credit gaps, excluding China, the private sector has develeraged in a large number of countries, until the third quarter of 2024. Current and future economic and financial conditions point more to a continuation of the decline than to a rebound.
The eurozone’s net international investment position in terms of direct and portfolio investment recovered significantly between 2015 and 2022, becoming positive from 2021 onwards, meaning that the eurozone has become a net creditor to the rest of the world. However, the income it receives from these assets is lower than the income it pays to non-resident investors. What are the reasons for this?
Would you expect a politician who promises to raise taxes on both households and corporates as a key plank of their growth strategy to get elected? Or the Parliament of an EU member state to vote against an EU initiative to cut such taxes? Probably not. And yet both just happened, with Donald Trump and fellow Republicans taking control of both the White House and Congress, and the French Parliament voting against the EU-Mercosur trade deal.
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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).
