Eurozone: Geared for a strong third quarter - ING

Peter Vanden Houte, ING's Chief Economist, Belgium, Luxembourg, notes that the European’s Commission economic sentiment indicator rose more than expected in August, suggesting double-digit GDP growth in the third quarter. However, this growth pace is unlikely to extend into the fourth quarter.

"The European’s Commission economic sentiment indicator rose to 87.7 in August from 82.4 in June and that was better than expected."

"Amongst the bigger member states, all countries saw higher sentiment figures, with Spain being the notable exception. All sectors, except for construction and the consumer where sentiment was broadly unchanged, saw confidence improving."

"Especially the services sector stood out, with a nine-point jump in confidence."

"As we mentioned before, the consumer remains the weak spot in the current recovery, with confidence largely unchanged since June. The recent rise in new Covid-19 infections might have hampered the improvement in confidence. But more importantly, fears of unemployment over the next twelve months remain quite elevated."

"Fortunately, several member states have decided to lengthen the temporary unemployment schemes, which limits the drop in disposable income. At the same time, more precautionary savings cannot be excluded."

"We’re looking at quarter-on-quarter GDP growth of close to 10% for the third quarter. But this is likely to slow down quite rapidly to more moderate growth figures, meaning that the year will likely end with a GDP level that is still about 6% lower than in the fourth quarter of 2019."

"A sign that generous monetary and budgetary support will have to be maintained in 2021, especially so if the introduction and the rolling out of a vaccine would take some time."