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Economic confidence across the eurozone came in at its second highest level in more than five years. There were even signs of inflation creeping up in Spain and Germany.
Economic confidence across the eurozone came in at its second highest level in more than five years. There were even signs of inflation creeping up in Spain and Germany.

Growth, Inflation Stirring Eurozone Economy

Eurozone growth is accelerating towards the end of the year, albeit with continued divergence across countries

Growth, Inflation Stirring Eurozone Economy

With more than a trillion euro fuel injection and no interest rates worthy of the name, the eurozone economy is stirring, more data confirmed, leaving policymakers hunting for signs the nascent recovery is sustainable.
Two ECB policymakers, in separate speeches, showed no indication they believed their job was close to done, although the bank continues to demand reforms from eurozone capitals to fix underlying problems, Reuters reported.
France eked out very meager growth, but it was nonetheless an improvement. Spain showed its economy was barreling ahead, but still with a huge lagging unemployment rate.
Economic confidence across the eurozone came in at its second highest level in more than five years. There were even signs of inflation creeping up in Spain and Germany–something dearly desired by the European Central Bank.
Furthermore, Friday’s data followed preliminary reports from purchasing managers that were much more bullish than predicted and suggested relatively solid growth in France, Germany and the eurozone as a whole.
“October’s rise in … economic sentiment supports the message from the (purchasing managers) that eurozone growth accelerated towards the end of the year, albeit with continued divergence across countries,” Jennifer McKeown, chief European economist at Capital Economics, wrote in a client note.

 Baby Steps
The improvement–albeit essentially baby steps–raises some questions about how much of the ECB’s job is done, that is to say whether stimulus provided by ultra-easy interest rates and its 80-billion-euro-a-month bond buying program should continue.
The ECB meets in December and will have to decide then whether it extends its bond-buying beyond an initial target date in March. To do otherwise would essentially subject markets and banks to a cold turkey cut-off.
ECB Executive Board member Benoit Coeure was clear on Friday that he and fellow policymakers wanted to see much more evidence before they pulled back.
“Monetary accommodation will be maintained until we see a sustained adjustment (in inflation),” he said. And referring to growth: “The whole discussion will be how sustained is that.”
Irish central bank chief Philip Lane concurred. “Until inflation is at a sustainable path to the current target, the current policy of accommodation will continue,” Lane, also an ECB Governing Council member, said at a Reuters Newsmaker event.

 Waking Up?
Specifically, French third quarter growth came in at 0.2%, following a small contraction in the previous three months.
It was arguably the worst data of the day, added to a downward revision in first quarter numbers, but Finance Minister Michel Sapin said there was nothing in it to suggest next year’s 1.5% projection would be missed.
Spain’s output grew 0.7% in the third quarter over the second, according to preliminary data from the National Statistics Institute.
It was a slightly slower rate than the previous quarter, but year-on-year the economic growth was calculated at 3.2%, more than anyone projected in a Reuters poll.
German inflation accelerated further in October. It was up 0.2% month-on-month in October for a year-on-year climb of 0.7%. Both were stronger than expected.
Spain’s inflation was running at 0.5% year-on-year, up from nothing in September.

 Economic Sentiment High
Meanwhile, eurozone economic sentiment was much better than expected in October driven by higher optimism in industry and services, a European Commission survey showed.
The commission said the economic sentiment indicator rose to 106.3 in October from 104.9 in September, well above market expectations of a small decline to 104.8. Separately, the business climate indicator also calculated by the commission, rose to 0.55 from 0.44 in September, its highest reading since July 2011.
Selling price expectations among manufacturers rose sharply to 3.2 points in October from 0.0 in September and -0.8 in August, coming closer to the long-term average of 4.7.
Among consumers however, inflation expectations over the next 12 months remained subdued, easing to 4.3 in October from 4.7 in September and remaining well below the long-term average of 19.

 

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