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?”.