The eurozone economic expansion was much stronger than expected at 0.4% in the third quarter, trimming bets on a 50bp rate cut in December and handing a modest boost to the euro.
The upbeat growth data will go a long way in alleviating the ECB’s fears about faltering activity and undershooting inflation.
There is a flicker here of the rising real wage, higher consumption path that policymakers had been flagging as the source of a rebound. My expectation is for policymakers to continue with back-to-back 25bp rate cuts, which will do the job just fine. There is no need to panic yet, and that takes a 50bp move off the table for now.
That said, these are hardly figures to get excited about. Germany may have eked out a touch of growth, but that is from a weaker position in Q2 than previously thought and the structural headwinds to growth will evidently persist in the longer term.
The quarterly growth data is backward looking and only captures one month of the poor PMI prints that have spooked the ECB into easing more aggressively. It points to a stronger outlook for consumption but does not preclude a fizzling out of the growth momentum in the fourth quarter which would reignite the discussion about a jumbo rate cut in December.
