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Eurozone Q3 GDP was resilient but a recession is imminent National GDP data released for Q3 show that Eurozone activity has slowed markedly from what seen in the summer. However, data released so far were on aggregate a touch better than what Oxford Economics’ analysts had expected. French and Spanish GDP increased by 0.2% over the quarter, while German GDP was up 0.3%. This means that eurozone GDP, to be released on Monday alongside the Italian number, could end up a touch better than expected. Broadly flat or slightly positive over the quarter versus a small decline pencilled into our latest forecast. Analysts still forecast a recession will begin in Q4 With high-frequency data in negative territory, it is a matter of how deep the recession will be and not if there will be one. In October, the Economic Sentiment Indicator declined to its lowest level since end of 2020. This poor sentiment was echoed in other surveys, such as the flash PMIs released on Monday. The Eurozone’s composite PMI fell to 47.1 in October, which, excluding the worst months of the coronavirus pandemic in early 2020, was the lowest reading since April 2013. Weakness was particularly acute in manufacturing Weakness was particularly acute in manufacturing with the manufacturing PMI falling 1.8pts to 46.6. Output in services fell as expected, standing at 48.2 in October from 48.8 in September. As high inflation dents real household incomes as higher operating costs force services firms to raise prices. This week we also received the results of the ECB’s Bank Lending Survey for Q4. In light of higher interest rates, a worsening economic outlook, and volatility in financial markets, banks reported strong tightening of lending standards, both for non-financial companies and households. The demand side of the equation was a bit more mixed, but was particularly worrying for the housing market. While average loan demand for companies was reported to have increased over the quarter, loan demand to households dropped. The situation looked particularly bad in Germany, with more than two-thirds of banks reported falling net demand for loans (down from just 4% in the previous quarter). The falls in other major Eurozone economies were notable as well.

Eurozone Q3 GDP was resilient but a recession is imminent
National GDP data released for Q3 show that Eurozone activity has slowed markedly from what seen in the summer. However, data released so far were on aggregate a touch better than what Oxford Economics’ analysts had expected.
French and Spanish GDP increased by 0.2% over the quarter, while German GDP was up 0.3%. This means that eurozone GDP, to be released on Monday alongside the Italian number, could end up a touch better than expected. Broadly flat or slightly positive over the quarter versus a small decline pencilled into our latest forecast.
Analysts still forecast a recession will begin in Q4
With high-frequency data in negative territory, it is a matter of how deep the recession will be and not if there will be one. In October, the Economic Sentiment Indicator declined to its lowest level since end of 2020. This poor sentiment was echoed in other surveys, such as the flash PMIs released on Monday.
The Eurozone’s composite PMI fell to 47.1 in October, which, excluding the worst months of the coronavirus pandemic in early 2020, was the lowest reading since April 2013.
Weakness was particularly acute in manufacturing
Weakness was particularly acute in manufacturing with the manufacturing PMI falling 1.8pts to 46.6. Output in services fell as expected, standing at 48.2 in October from 48.8 in September. As high inflation dents real household incomes as higher operating costs force services firms to raise prices.
This week we also received the results of the ECB’s Bank Lending Survey for Q4. In light of higher interest rates, a worsening economic outlook, and volatility in financial markets, banks reported strong tightening of lending standards, both for non-financial companies and households.
The demand side of the equation was a bit more mixed, but was particularly worrying for the housing market. While average loan demand for companies was reported to have increased over the quarter, loan demand to households dropped.
The situation looked particularly bad in Germany, with more than two-thirds of banks reported falling net demand for loans (down from just 4% in the previous quarter). The falls in other major Eurozone economies were notable as well.

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