Consumer spending drives strong Q3 GDP
US Q3 real Gross Domestic Product (GDP) advanced 4.3%, well-above consensus and reflecting much stronger consumer spending than monthly data had previously suggested.
Consumer spending had been volatile this year and the softening labour market could imply a slower pace of spending next year. The GDP reading was boosted by 1.6 percentage points due to a swing in the trade balance. Business equipment investment is also supporting growth, as evidenced by solid orders for durable goods.
Despite solid activity, risks continue to be skewed to more Fed cuts as officials follow the softer labour market data. Furthermore, President Trump’s administration announced on December 23 that it plans to impose tariffs on Chinese semiconductor imports due to what it calls Beijing’s “unreasonable” efforts to dominate the chip industry, but the implementation will be postponed until 2027.
Resilient Europe
EU soft wheat exports reached 10.80 million metric tons by December 21, compared with 10.52 million tons the previous week and down 2% from a year earlier, European Commission data showed on December 23. EU barley exports totalled 5.07 million tons, compared with 5.01 million tons a week earlier and significantly higher from the corresponding previous period. In imports, the volume of maize shipped into the EU so far this season had reached 7.81 million tons, against 7.49 million a week earlier and down 21% year on year.
Nonetheless, the European economy weathered tariffs and uncertainty shocks better than anticipated this time last year. In Q1, US firms front-loaded purchases in anticipation of tariffs, benefitting European exporters to a greater extent than what had been expected.
Even over Q2 and Q3, the drag from higher tariffs was less severe than had been projected after Liberation Day, partly because tariffs were set lower than initially announced and partly because the fiscal stimulus and US economic growth was buoyed by strong AI-driven investment, which helped offset the negative impulse of tariffs and immigration restrictions.
Importantly, US President Donald Trump’s election sparked a lively debate on Europe’s geopolitical role and the future of its defence and foreign policies and highlighted the need for reforms to foster growth.
As former European Central Bank president Mario Draghi recently pointed out, this can be done via treaty changes or via the formation of “coalitions of the willing” to tackle specific economic and geopolitical challenges.
This article does not constitute legal and, or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
