Third quarter GDP growth in the Eurozone beat consensus expectations, rising 2.5 percent year-over-year. The recovery appears to be increasingly broad-based, but inflation has remained quite tame.
Third Quarter Print Reaches New Cycle High
Real GDP in the Eurozone expanded 2.5 percent year-over-year in Q3, the fastest year-over-year growth rate since Q1-2011. Real GDP grew 0.6 percent on a quarterly basis (not annualized), and both the quarterly and year-ago growth rates were above the Bloomberg consensus.
While Q3 GDP data broken down into its underlying demand components are not yet available, today’s print is in line with the continued improvement in the Eurozone economy over the past few quarters. Data released this morning on the French economy, one of the largest in the Eurozone, offer a glimpse into economic growth in the Eurozone on a more detailed level. Real GDP in France accelerated to a 2.2 percent year-overyear pace, the strongest growth since 2011, and the underlying data affirmed continued broad-based growth for the quarter, with household consumption, business fixed investment and public sector expenditures all accelerating on a year-over-year basis.
A strengthening labor market in the Eurozone likely helped boost Q3 output. Eurozone unemployment data released today showed the unemployment rate at 8.9 percent for September, down from a revised 9.0 percent in August and the 9.6 percent rate registered to start 2017.
Stagnant Price Pressures Remain Area to Watch
Overall output growth and unemployment data reinforce positive economic trends, but inflation in the Eurozone maintained its sluggish pace of growth in October. Advance estimates for CPI inflation showed price growth of just 1.4 percent year-over-year, below the consensus of 1.5 percent. Core CPI excluding food and energy also displayed weakness, with inflation of just 0.9 percent year-over-year. Core CPI growth had been showing some signs of accelerating over the past few months with readings north of 1 percent, but this morning’s reading shows a loss of momentum.
Tame inflation was a key factor in the European Central Bank’s (ECB) decision last week to reduce its monthly asset purchases but extend the program through September 2018 "or beyond, if necessary". The ECB’s move to taper its purchases from €60 billion a month to €30 billion a month starting in January reflects the strengthening and broad-based economic recovery taking hold in Europe. However, with inflation in the euro area remaining benign, a complete removal of policy accommodation remains too aggressive a move for policymakers. The central bank kept its three policy rates unchanged, and it continued to stress that they would "remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases." In short, rate hikes in the Eurozone are likely some ways off still.
