Eurozone Economy Grows Steadily, Albeit Slowly. What Now?

Eurozone Economy Grows Steadily, Albeit Slowly. What Now?

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A Renault assembly line in western France. The nation, which has the second-largest economy in the euro zone, grew only 0.2 percent in the third quarter

Credit
Philippe Wojazer/Reuters

FRANKFURT — Amid myriad battles over trade agreements, concerns about the impending negotiations for Britain’s exit from the European Union, and political instability across the region, the eurozone continued to grow steadily but slowly in the third quarter.

Gross domestic product in the 19-nation currency union rose 0.3 percent in the three months through September, compared to the previous quarter, Eurostat, the office that compiles statistics for the European Union, announced on Monday. That was an unchanged growth rate from the previous quarter and corresponds to an annual rate of 1.4 percent.

Consumer prices in the 12 months through October rose 0.5 percent, up from 0.4 percent in the 12 months through September.

Economic growth and inflation were in line with analysts’ forecasts.

The indicators were closely watched not only for what they might say about the health of the eurozone economy, but for how they might affect decisions by the European Central Bank that can have a profound effect on financial markets.

Here are the main takeaways:

Still sluggish

First, some good news: The eurozone economy has not shrunk since the beginning of 2013, and some countries are doing pretty well. Spain, which once had one of Europe’s sickest economies, grew a healthy 0.7 percent in the third quarter.

But the currency bloc’s economy only recently got back to where it was eight years ago, when the global financial crisis was gathering steam. In many ways, the eurozone is still in crisis. Unemployment is 10.1 percent, and many countries are struggling. France, which has the second-largest economy in the eurozone, grew only 0.2 percent in the third quarter after shrinking in the second quarter.

Based on recent surveys showing rising optimism among businesses and consumers, some analysts thought the numbers released on Monday would provide a positive surprise. But they were disappointed.

What will the E.C.B. do?

The European Central Bank orients its policy to the inflation rate, which remains well below the official target of close to, but below, 2 percent. The annualized inflation rate of 0.5 percent in October was slightly higher than the previous month, but the slight acceleration is not a game changer.

Analysts have begun speculating about whether the bank might begin scaling back its de facto money-printing program (which aims to reduce market interest rates and stimulate the economy). But the numbers released on Monday did not provide any ammunition for those who think that “tapering” could begin sooner than expected.

Mario Draghi, the central bank’s president, has refused to stoke the tapering talk. He said on Oct. 20 that purchases of government bonds, corporate debt and other assets — a way of pumping money into the economy — would continue at least through March, and longer if necessary, to push up inflation.

If growth and inflation remain sluggish, the central bank could decide to keep buying assets for longer. Bert Colijn, an economist at ING Bank in London, predicted that the central bank would announce an extension of the stimulus program at its next meeting, on Dec. 8.

“It will become very difficult for the E.C.B. to wait longer than that,” Mr. Colijn said in a note to clients on Monday.

What’s next?

Some economists expect the eurozone to grow more quickly in the current quarter. The region’s economy seems to have shrugged off the “Brexit” vote from the summer, and Europe is benefiting from the stronger economy in the United States, the biggest market for eurozone exports.

The austerity that has weighed on growth is also running its course. Strict limits on government spending, a reaction to excessive indebtedness in countries like Italy and Greece, are being relaxed.

“Worries about weak growth in the second half of the year can in our opinion now be tossed overboard,” Katharina Utermöhl, an economist at the German insurer Allianz, said in a note to investors.

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