Euro zone pow­ers ahead in third quar­ter


FRANK­FURT: The euro-area econ­omy main­tained its solid pace of ex­pan­sion in the third quar­ter, keep­ing it on track for its best an­nual per­for­mance in a decade.

Gross do­mes­tic prod­uct rose 0.6% in the pe­riod, un­changed from a flash es­ti­mate, the Euro­pean Union’s statis­tics of­fice said yes­ter­day.

In Ger­many, the re­gion’s largest econ­omy, ex­pan­sion ac­cel­er­ated to 0.8%, topped the 0.6% me­dian fore­cast in a Bloomberg sur­vey, which was also the sec­ond quar­ter growth rate. The ex­pan­sion was driven by ex­ports and cap­i­tal in­vest­ment, and net trade made a pos­i­tive con­tri­bu­tion.

Sup­ported by mon­e­tary stim­u­lus from the Euro­pean Cen­tral Bank, the econ­omy of the sin­gle cur­rency has picked it­self up from a pe­riod of record unem­ploy­ment and near de­fla­tion.

Now, the Euro­pean Com­mis­sion says the econ­omy is head­ing for its best growth since be­fore the fi­nan­cial cri­sis and it’s be­ing cited by the In­ter­na­tional Mon­e­tary Fund as the main rea­son for a global growth up­grade last month.

The ECB is tak­ing credit for putting the euro econ­omy back on its feet af­ter a cri­sis that threat­ened the sur­vival of the cur­rency union.

Vice pres­i­dent Vi­tor Con­stan­cio said on Mon­day that pol­i­cy­mak­ers have been “highly suc­cess­ful” in driv­ing the re­cov­ery with in­ter­est-rate cuts and stim­u­lus pro­grams.

His ex­ec­u­tive board col­league Benoit Coeure ar­gued that the re­gion’s up­swing “is prob­a­bly the strong­est in al­most two decades in terms of ro­bust­ness and bal­ance, cre­at­ing scope for struc­tural re­forms that would come as pol­icy mak­ers scale back mon­e­tary stim­u­lus.’’

The ap­petite for such mea­sures is cur­rently be­ing tested in Ger­many, where Chan­cel­lor An­gela Merkel en­tered the final stretch of pre­lim­i­nary talks to form a new govern­ment, with fac­tions in the com­plex multi-party ne­go­ti­a­tions re­main­ing far apart.

Any de­ci­sions taken by the fu­ture coali­tion part­ners on whether to cut taxes or fun­nel more money into ed­u­ca­tion and dig­i­tal in­fra­struc­ture will im­pact Ger­many’s growth prospects.

The rate of eco­nomic ex­pan­sion over the next two years looks set to ex­ceed the pace that’s sus­tain­able in the long term.

“As cum­ber­some and as dif­fi­cult as the coali­tion talks in Ber­lin are cur­rently are, spend­ing more money in our view re­mains the eas­i­est-to-agree-on com­mon de­nom­i­na­tor for any next Ger­man govern­ment,” Carsten Brzeski, chief econ­o­mist at INGBank AG said in a note. “There are plenty of in­gre­di­ents for an­other ex­ten­sion of the cur­rent golden cy­cle.”

In Ger­many, the jump in gross do­mes­tic prod­uct was driven by ex­ports, while in­vest­ment im­proved as com­pa­nies spent more on new equip­ment.

But while its mo­men­tum is prov­ing a sup­port to both the euro area and the global out­look, the pace also means Ger­many is po­ten­tially strain­ing against its max­i­mum ca­pac­ity, with reper­cus­sions for in­fla­tion­ary pres­sures.

Ger­many’s ZEW in­vestor con­fi­dence in­dex rose in Novem­ber for a third month, to 18.7, miss­ing fore­casts for an in­crease to 19.5.

“Still, the read­ing was the high­est since May and showed the out­look for Ger­man econ­omy con­tin­ued to be grat­i­fy­ingly pos­i­tive,” ZEW pres­i­dent Achim Wam­bach said in a state­ment.

“You can feel the Ger­man econ­omy is re­ally hum­ming along,” Hol­ger Sandte, chief Euro­pean an­a­lyst at Nordea Mar­kets in Copen­hagen, said be­fore the re­lease.

“We are look­ing at a pretty ro­bust pic­ture so that raises the ques­tion: where is the speed limit?”.

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