World Economy

ECB May Step Up Monetary Stimulus

ECB May Step Up  Monetary StimulusECB May Step Up  Monetary Stimulus

Eurozone economic growth was slower than expected in the third quarter, preliminary data showed Friday, increasing market expectations that the European Central Bank will step up its monetary stimulus to the economy next month.

The EU’s statistics office Eurostat said the gross domestic product of the 19 countries sharing the euro expanded 0.3% quarter-on-quarter for a 1.6% year-on-year increase in the July-September period, Reuters reported.

Economists polled by Reuters had expected a 0.4% quarterly rise and a 1.7% annual increase. “This outcome is also lower than the ECB’s staff projections, which would add to the already strong case for the ECB to step up monetary stimulus in December,” said Nick Kounis, head of macro and financial markets research at ABN AMRO bank. “If the ECB needed a final push to be decisive, this is it.”

He expected the ECB to step up the pace of its government bond-buying program by €20 billion ($21.54 billion) per month to €80 billion ($86.15 billion), a signal that such purchases would go on beyond September 2016, and expand the eligible universe of assets.

Negative Net Trade

Economists said the slower third-quarter growth was likely to be a result of negative net trade with the rest of the world, which was clear in the case of Germany, France and Italy.

“This suggests that the benefit to eurozone exporters coming from the weak euro was offset by muted global growth,” said Howard Archer, economist at IHS Global Insight. “Meanwhile, relatively decent eurozone domestic demand supported imports.”

But Eurostat data showed that the eurozone had a seasonally unadjusted trade surplus of €20.5 billion in September with exports rising 1% and imports falling 1% year-on-year.

Aggregated eurozone growth was lower than expected mainly because growth in Italy, the Netherlands, Portugal and Finland all underperformed market expectations.

The eurozone’s two biggest economies, Germany and France, both grew in line with expectations at 0.3% on a quarterly basis. But the third biggest Italy, with 0.2% quarterly growth, fell short of expectations of a 0.3% expansion and the Netherlands grew only 0.1% against expectations of 0.3%.

Failed to Break Out

On an annual basis, the eurozone economy, which comprises some 330 million people from the Atlantic to the eastern Mediterranean, was 1.6% bigger, just ahead of the 1.5% rate recorded in the second quarter.

The eurozone started recovering from its longest-ever recession just over two years ago, but growth has never managed to break out of a narrow range, despite favorable conditions such as cheaper oil, a lower euro and weak inflation. The slowdown in emerging markets, notably China, isn’t helping and is one reason why the central bank is expected to do more in December.

“The subdued pace of growth and persistent weak inflation applies further pressure on the bank and increases the likelihood of the further measures being announced in December,” said Chris Williamson, chief economist at financial information company Markit.

Finland was the worst-performing eurozone country in the third quarter, contracting 0.6%.

Consumer Spending

Though the third-quarter data were preliminary, they indicate that growth was highly dependent on one factor—the consumer.

The German and French statistics agencies credited consumer spending for much of the growth their economies witnessed. Both expanded by 0.3% in the quarter.

Consumer demand has helped compensate for subdued industrial and trade activity, which economists blame on the emerging market slowdown.

A number of factors have helped shore up spending, most notably the falling oil prices over the past year, which has translated into lower fuel prices.

Money saved at the forecourt or on domestic energy bills is being spent elsewhere.

Low inflation has helped, too, especially as wages are rising in many parts of the eurozone.

And though unemployment remains high, notably in Greece and Spain, it’s been falling gradually.

Only Spain enjoyed one of the highest growth rates in the eurozone, with a quarterly expansion of 0.8% for a 3.4% year-on-year increase.