Euro zone growth beats forecasts despite stronger euro

The euro zone has recorded better growth figures than expected, indicating the recent strength of the euro has done little to impede a burgeoning economic recovery. In a further sign of upturn, unemployment has fallen to a nine-year low.

Data released on Tuesday showed the euro zone economy grew 0.6 per cent in the third quarter from the previous three months. The figure was slightly above analysts’ expectations and comes despite fears that a stronger currency would hurt the region’s exporters. The single currency rose from about $1.14 against the dollar in early July to more than $1.20 in early September.

The flash estimate, produced by Eurostat, the European Commission's statistics bureau, was down slightly from a revised 0.7 per cent for the previous quarter, but means the economy has expanded by an impressive 2.5 per cent over the past year.

Unemployment fell to its lowest level since January 2009, hitting 8.9 per cent in September. Youth unemployment remains at 18.7 per cent but has fallen substantially during the past year, from 20.4 per cent in September 2016. Sharp falls in the jobless rate have also been recorded in some of the region’s most vulnerable economies, such as Greece, Cyprus and Spain.

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"It can't really get much better. Growth is high, unemployment is falling. Strong conditions outside the euro area in the region's main trading partners have offset any impact from the euro's appreciation," said Holger Schmieding, chief economist at Berenberg, an investment bank.

Figures published earlier on Tuesday showed that France, the region’s second-largest economy, continued to expand at a steady pace after years of lacklustre growth.

The euro zone recovery has been the surprise economic success story of the past year. Policymakers in the region have started to remove some of their support in response to signs the economy is strengthening after years of crisis and stagnation.

Downsize bond buying

Last week the European Central Bank announced it would downsize its bond buying under its quantitative easing programme. The bank is now buying €60 billion of bonds a month as part of the 2.6 trillion programme but will buy €30 billion a month from January until next September.

Price pressures, however, remain weak. Inflation continues to fall short of the ECB’s target of just under 2 per cent, falling from 1.5 per cent last month to 1.4 per cent in the year to October. Core inflation, which strips out price changes for more volatile items such as food and energy, fell to 0.9 per cent, its lowest level since May. The stronger currency weakens inflation by lowering the cost of imports.

Mr Schmieding added: “The fall in core inflation is mainly down to one-off factors, it isn’t the start of a new trend. But there are no convincing signs of a pick-up in inflationary pressures, and that fully vindicates the ECB’s decision to proceed with a slow end to its bond buying.”

– Copyright The Financial Times Limited 2017