Eurozone GDP surprised on the upside in Q3 2024, increasing by 0.4% compared to Q2 2024. Inflation was also slightly above the anticipated rate in October, and in combination with weaker GDP growth forecasted in Q4 2024, the ECB is expected to maintain course for an interest rate cut of 25–50 bps in December. Notably, Germany continues to see a subdued level of growth. One driver of this trend is its weak manufacturing performance, exacerbated by a need to comply with strict fiscal rules.

Flash estimates of HICP showed an increase from 1.7% in September to 2.0% in October – this was slightly ahead of the consensus estimate of 1.9%. Core inflation, which excludes prices of energy, food, alcohol and tobacco, remained unchanged at 2.7%, while services inflation remained steady at 3.9%. With that said, Capital Economics, an economic forecaster, predicts that core inflation will fall in 2025, with the headline inflation rate expected to undershoot the 2% target.

On balance, weaker economic growth in Q4 and falling inflation should allow the ECB to continue to cut interest rates. Lower interest rates reduce the cost of credit for consumers and businesses, making loans and mortgages more affordable. As interest rates fall, disposable incomes and business investment rise. The resulting increase in economic activity will drive logistics demand and support a recovery in the European market.

Looking ahead, the real concern for the European and world economy is the impact of Donald Trump’s second term as president of the United States, having been elected on a platform of continuing his ’America First’ policy agenda. Trump has repeatedly promised a new round of tariffs on many of the US’s key trading partners, including Europe, China and Mexico. Trump’s previous term was marked by erratic decisions and policy-making and, as such, it is hard to know what the scope and breadth of the sanctions will be.

Targeted tariffs against the EU are likely to have a depressing impact on exports to the US. That said, Republican fiscal policy is typically highly expansive and, as such, many analysts predict that the increase in domestic demand in the US will offset much of this effect.

Additionally, Trump’s unknown positions on many geopolitical events, including Ukraine, the Middle East and South East Asia, mean that we may now enter a period of greater instability as American foreign policy becomes more transactional. The eventual outcome may be greater risks to international trade flows, with transport and insurance costs being passed on to consumers. This could lead to a resurgence in inflation and hurt the prospects for sustained reductions in interest rates.

_{Read the articles within Spotlight: European Logistics Outlook – Q3 2024 below.}