Europe’s economy is in much better shape than our self-bashing culture would have you believe

There has been remarkably limited interest in Europe at recent international economic and financial gatherings, as if “Europe’s moment”, as ECB President Lagarde dubbed it back in the Spring, has already passed in the eyes of many. Meanwhile, European media outlets have been indulging in negative narratives about political risks, persistent industrial doldrums, and inability to implement reforms that might preserve Europe’s place in a world increasingly dominated by the US and China. And yet, under the radar, a lot of good things have been happening.

Activity has been strengthening across the board

For the past three weeks, economic data surprises in the Eurozone have been predominantly on the upside, and by a growing margin. Q3 GDP prints generally exceeded consensus forecasts, with Eurozone growth as a whole picking up to 0.2% q/q and 1.4% y/y, bolstered by an unexpectedly strong 0.5% print in France, and ongoing strength in Spain (+0.6% q/q). Admittedly, Germany and Italy stagnated. However, there are signs that the worst of the summer pullback is over. In fact, September data for industrial production and car registrations showed dynamism at regional level and among the three largest economies. Moreover, according to the European Commission’s quarterly survey, capacity utilisation rate across the Eurozone stood at 78.2% (an 18-month high), while order books hit a three-and-a-half year high.

Exports, including to the US, have been remarkably resilient. Despite a challenging environment characterized by sharply higher US tariffs and intensified competitive pressure from China –both in Europe and in third markets – the Eurozone’s exports bounced back sharply in September (+4,7% m/m, biggest monthly increase since the Covid period), more than reversing the pullback observed between April and August. Overall, exports continue to trend upwards, with the 12-month moving total reaching a new high.

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