European bond yields fell, French bonds underperformed, equity markets rose except Portugal, oil dropped, and the euro declined slightly.

European bond yields declined this week, except for Germany. French bonds continue to outperform Spanish bonds. France's creditworthiness has weakened, now more aligned with Greece than Germany. The premium investors demand to hold French government bonds over German ones has risen sharply, with the spread between French and German 10-year bond yields reaching levels not seen since the Eurozone debt crisis in 2012. Equity markets ended the week in positive territory, except for Portugal, which dropped 1.29%. The euro edged slightly lower against the dollar, closing at 1.0566. In commodities, Brent crude oil prices fell by 1.44%, driven by concerns of a supply surplus next year, despite OPEC+ extending deep production cuts and delaying output increases until 2026. Additionally, the number of oil and gas rigs in the US rose, signalling higher output from the world’s largest crude producer.

Eurozone GDP grew in Q3 2024, driven by consumption and investment, but a slowdown is expected in Q4. Business activity contracted in November, with weak demand and rising inflation. Germany’s industrial slump deepens.

The Eurozone economy showed solid growth in Q3 2024, with GDP increasing by 0.4% QoQ and 0.9% YoY, driven by consumption and investment. However, a slowdown is expected in Q4, prompting the ECB to likely cut rates by 25bp on December 12. Government expenditure grew by 0.5%, while gross fixed capital formation rose by 2%, recovering from a previous contraction. Household consumption increased by 0.7%, though exports declined, tempering overall growth. Employment rose modestly by 0.2%, with challenges ahead for the final quarter. Several countries, including France, Estonia, and Lithuania, experienced accelerated growth, while Germany's industrial slump deepened, further clouding economic prospects. Business activity in the Eurozone contracted in November, marked by weak demand and rising inflation. Germany’s industrial sector continued to struggle with production declines and external risks, likely exacerbated by U.S. trade policies under the Trump administration.

The Eurozone economy showed solid growth in Q3, driven by consumption and investment, though exports declined. Employment remained stable, with potential challenges expected in Q4.

The Eurozone economy showed resilience in Q3 2024, with seasonally adjusted GDP increasing by 0.4% compared to Q2, and a YoY rise of 0.9%. However, this growth may prove temporary, as a slowdown is anticipated in Q4. The stronger-than-expected performance could encourage the ECB to proceed with a consensus 25bp rate cut next week. Notable Q3 figures include government expenditure growing by 0.5%, down from 1.2% in Q2, gross fixed capital formation up by 2.0%, recovering from a -2.4% contraction in Q2, and household consumption increasing by 0.7%, improving from a flat 0% in Q2. Despite these positive contributions, exports declined, tempering the overall growth outlook. Employment rose by 0.2%, with a YoY increase of 1.0%, while hours worked remained stable, indicating potential challenges ahead in Q4.

Several Eurozone countries saw accelerated GDP growth in Q3, including France, Estonia, Cyprus, Slovenia, Finland, and Lithuania. Ireland and Austria also showed recovery, while Spain remained stable at 0.8% QoQ. Portugal and Slovakia sustained modest growth, while Italy stagnated, and Latvia contracted. Belgium and the Netherlands experienced slower growth.

We expect a slowdown in Eurozone economic growth in the final quarter of 2024. Additionally, we anticipate the ECB will implement a 25bp rate cut December 12, as the economy remains weak, with potential risks from trade policies under the Trump administration.

The Eurozone economy contracted in November, with weak demand, declining business activity, rising inflation, and lower employment, while optimism for recovery remained at a 12-month low.

In November, the Eurozone economy slipped back into contraction, with the Composite PMI Output Index falling to 48.3 from 50.0 in October, marking a 10-month low. The service sector was a key driver of the downturn, with the HCOB Eurozone Services PMI Business Activity Index dropping to 49.5 from 51.6, its lowest level in 10 months. Manufacturing continued its longest contraction streak in the survey’s history, with factory production falling for the 20th consecutive month. Private sector demand remained weak, as new orders contracted for the sixth consecutive month, shrinking at the sharpest pace year-to-date, with a notable decline in export orders. Employment decreased slightly across the Eurozone, with manufacturing seeing the largest job cuts, while service sector employment grew marginally. Business confidence dropped to a 12-month low, and inflationary pressures increased, with input costs and output prices rising for the second month in a row, both reaching three-month highs. Backlog depletion continued for the 20th straight month, signalling limited prospects for recovery. Although the outlook for the next 12 months remains positive on balance, optimism has waned, with expectations for growth at their lowest level since September 2023. With demand trending lower, inflation risks are rising, particularly due to weaker domestic demand and the potential for higher import prices. Economic stagnation is predicted for the final quarter of 2024, compounded by political uncertainties in major economies and global trade tensions.

We expect business activity to remain subdued, particularly in manufacturing. The service sector could see a boost due to the Christmas season.

Germany’s industrial slump deepens, with weak production, structural challenges, and external risks clouding prospects despite modest factory order improvements.

Germany’s industrial slump persisted in October, with production contracting by 1% MoM after a 2.5% decline in September, resulting in a year-on-year drop of nearly 5%. This sluggish start to the fourth quarter heightens fears of a potential winter recession. German industry continues to reflect broader economic struggles, caught between cyclical pressures and structural challenges. Its traditional reliance on cheap energy and accessible export markets is proving unsustainable, compelling a shift to new economic realities. Nearly five years’ post-pandemic, industrial production remains over 10% below pre-pandemic levels. While recent data hints at stabilization, persistently high inventory levels and low manufacturing capacity utilization—aside from food and apparel—underscore ongoing vulnerabilities. However, a smaller-than-expected 1.5% decline in factory orders offers a glimmer of hope for a near-term recovery. Despite this, external risks, such as U.S. policies encouraging production shifts and instability in key export markets like France, cast uncertainty over the prospects of a sustained rebound beyond a potential short-lived cyclical uptick.

We anticipate that Germany’s industrial sector will remain weak through the final quarter of 2024 and into early 2025. The impact of U.S. trade policies, particularly under the Trump administration, may further exacerbate challenges for German industry. Additionally, Germany continues to struggle with innovation, relying on outdated business models that hinder competitiveness in an evolving global economy.