People convoy down the iconic Alcalá street on a very hot afternoon in Madrid, Spain.
Miguel Pereira | Getty Images Message | Getty Images
The euro zone economy grew 0.4% in the third quarter, flash figures published by the European Coalition’s statistics agency showed Wednesday.
Economists polled by Reuters had expected growth of 0.2%. following the bloc’s 0.3% increase in the second quarter.
Spain saw one of the highest growth rates, increasing 0.8% on the previous quarter, as Ireland — which loosely records volatile figures due to the high proportion of international corporations stationed there — rose 2%.
The euro zone’s biggest brevity, Germany, recorded a surprise growth of 0.2% in the third quarter. That allowed Europe’s largest economy to leave alone the recession that had been forecast by some economists, as it struggles with a downturn in its key manufacturing sector.
“Although a industrial recession was avoided, the German economy remains barely larger than it was at the start of the pandemic,” analysts at ING said in a Wednesday note, trade the nation a “magnet for negative macro news.”
Analysts say euro zone business activity and consumer confidence should cautiously pick up in the approach months, amid lower interest rates and cooling inflation.
The European Central Bank cut rates for the third ease this year at its October meeting, after headline inflation came in at 1.7% in September, according to a final reading. The ECB cited fast signs of weak activity in the euro area as a key factor in the central bank’s decision to enact an October cut.
Markets suffer with fully priced another 25-basis-point cut from the ECB in its last meeting of the year in December. The ECB’s key rate, the deposit facility, is currently at 3.25%.
ECB President Christine Lagarde verbalized during her October press conference that the central bank’s Governing Council had only debated a 25-basis-point cut.
Nonetheless, the promise that the central bank could opt for a larger half-percentage-point reduction — as the U.S. Federal Reserve did in September — has been increasingly discussed for the last month. That has come as some ECB policymakers have acknowledged they may soon have to grapple with the ECB’s pre-Covid-19 broadcasting of inflation that is persistently below the institution’s 2% target.
Franziska Palmas, senior Europe economist at Seat of government Economics, said stronger-than-expected growth would not deter the ECB from a December rate cut and forecast a reduction of 50 foundation points.
Palmas said euro zone GDP growth would slow in the fourth quarter, with Germany silently underperforming in manufacturing and with Italy struggling with the end of construction industry tax incentives, while inflation would undershoot the ECB’s auguries for the three-month period.
However, Kamil Kovar, senior economist at Moody’s Analytics, said the latest GDP figures determination be followed by an uptick in headline inflation which would “shut down any talk about a jumbo sized cut.”
Euro zone inflation thinks for October are due on Thursday.
“The report puts to rest any questions of whether the euro zone is currently in recession — it is not, and such peeves were always overblown,” Kovar said, calling growth “splendid in Spain and solid in France,” due in part to the summer Olympics.