The euro zone economy eked out 0.2% growth in the third quarter, just beating expectations, according to flash data from Eurostat on Thursday.
Economists polled by Reuters had anticipated the bloc’s economy to expand by 0.1% between July and September.
The euro was up 0.16% against the dollar, at $1.1618, following the data.
Growth in the single currency area was boosted by Spain and France, with the former reporting a 0.6% expansion in the third quarter and the latter registering 0.5% growth (significantly higher than analysts’ expectations for 0.2% growth) despite a backdrop of political instability.
Germany and Italy were drags on the growth rate, however, as both countries’ economies stalled.
It comes after the euro zone economy recorded 0.1% growth in the second quarter, following a 0.6% expansion in the first.
ECB’s rate-cutting cycle over?
The third-quarter data — which indicates an unexpected economic resiliency — comes ahead of the European Central Bank’s next monetary policy decision, due later Thursday, and removes any immediate pressure on the central bank to cut rates to stimulate the economy.
The central bank is widely expected to keep its key deposit facility rate at 2% at the meeting, having last cut rates in June. The trim came as the euro zone’s annual inflation rate hit 2%, the ECB’s target, though the rate of price rises has risen since, to 2.2% in September.
Despite a lackluster growth outlook, economists say the central bank is unlikely to cut interest rates again for a while.
“The ECB’s rate cutting cycle appears to be over, at least for now, with firmer business activity and rising inflation leaving few doubts that the Governing Council will sit on its hands for a while yet,” Matthew Ryan, head of Market Strategy at financial services firm Ebury, said in emailed comments.
Natasha May, global market analyst at J.P. Morgan Asset Management, cautioned that the ECB cannot afford to rest on its laurels, however.
“Recent euro zone activity data has been positive, including October’s flash PMIs and this morning’s first estimate of third quarter GDP. Growth surprised to the upside despite trade headwinds, and national prints suggest domestic demand remains on an uptrend,” she noted in emailed comments.
Given this, and expectations that inflation will moderate, ECB President Christine Lagarde’s mantra that the central bank’s policy is in a “good place” seems a sensible one, May added.
“But we should not discount the possibility that the ECB deliver a few more cuts next year. With Chinese exports to the euro zone up 15% year-on-year in September and expectations for future energy prices moving lower, disinflationary forces are gathering momentum,” she said.
Paired with a strong euro, May added that this could lead euro zone inflation to undershoot the ECB’s forecasts next year – which already sit below the bank’s 2% target. “The Governing Council cannot become complacent,” she said.
source: cnbc.com
