Individuals strolling down the famous Alcalá street on a scorching afternoon in Madrid, Spain.
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According to preliminary statistics unveiled on Wednesday by the European Union’s statistics office, the eurozone experienced a growth rate of 0.4% in the third quarter.
Economists surveyed by Reuters had forecasted a growth of 0.2%, which follows a 0.3% growth observed in the previous quarter.
Spain led the pack with a robust 0.8% increase from the previous quarter, while Ireland’s figures, often volatile due to its high concentration of international businesses, recorded a remarkable rise of 2%.
Germany, recognized as the largest economy in the eurozone, reported an unexpected growth of 0.2% in the third quarter. This positive shift helped prevent a recession that many analysts had predicted, despite ongoing challenges in its vital manufacturing sector.
ING analysts remarked, “While a technical recession has been avoided, the expansion of the German economy remains feeble, comparable to its state at the onset of the pandemic.” They highlighted that Germany continues to attract negative macroeconomic news.
Experts suggest that business activity and consumer optimism in the eurozone may see a cautious revival in the coming months, aided by reduced interest rates and a decrease in inflation rates.
In October, the European Central Bank (ECB) lowered interest rates for the third time this year, following a drop in headline inflation to 1.7% in September, as reported by final statistics. The ECB pointed to ongoing signs of economic weakness across the eurozone as a significant factor influencing its decision to reduce rates.
Market analysts anticipate another 25 basis points cut from the ECB in its December meeting, bringing the deposit rate, the ECB’s main benchmark, down to 3.25%.
During an October press conference, ECB President Christine Lagarde stated that the board had only considered a 25 basis points cut in interest rates.
Nonetheless, recent discussions have emerged about the possibility of a steeper rate cut of 0.5 percentage points, similar to the U.S. Federal Reserve’s September adjustment. Some ECB members acknowledge the necessity of addressing the ongoing low inflation rates, which remain below the ECB’s target of 2%, a remnant from pre-pandemic conditions.
Franziska Palmas, a senior European economist at Capital Economics, expressed that stronger growth figures would not deter the ECB from implementing a 50 basis point cut in December, citing expected deceleration in GDP growth in the fourth quarter linked to weak German manufacturing and Italy’s slow pace in phasing out construction tax incentives. However, she remains hopeful for lower inflation than the ECB’s three-month outlook.
In contrast, Kamil Kobar, a senior economist at Moody’s Analytics, predicts a rise in headline inflation consequent to the latest GDP data, suggesting this may halt discussions about major rate cuts.
The eurozone’s inflation data for October is set to be published on Thursday.
Kobar posited, “This report effectively settles the debate regarding whether the eurozone is currently in recession. It clearly indicates that it is not, and previous concerns have been overblown.” He remarked on Spain’s impressive growth and France’s stable economic progress.
