Euro zone growth, eclipsing US economy, set to be best in decade

Partly as a result of the growth, euro zone investments have turned in one of their best years since the single currency was born in 1999.
Partly as a result of the growth, euro zone investments have turned in one of their best years since the single currency was born in 1999.PHOTO: REUTERS

BRUSSELS (Reuters) - The euro zone's annual economic growth rate outstripped that of the United States in the third quarter setting up 2017 as the best year for the currency area since financial markets crashed a decade ago.

Germany was a major factor, but even some of the bloc's laggards, such as Italy, showed signs of revival.

Eurostat, the European Union statistics office, confirmed a preliminary estimate that euro zone gross domestic product (GDP) grew 0.6 per cent from July to September from the previous quarter and on a year-on-year basis was 2.5 per cent higher.

This was higher than the 2.3 per cent year-on-year rate for the US economy, which had been growing faster than the euro zone.

The US quarterly numbers were slightly better than the euro zones at 0.7 per cent, however.

"A robust labour market recovery, growing export markets, an accommodative monetary stance, improving lending conditions and modest inflation are but a few of the tailwinds that the euro zone economy is experiencing," ING economist Bert Colijn said.

"Because of that, this could well be its strongest year for growth since 2007. The euro zone will likely outpace both the US and UK in terms of GDP growth in 2017," he said.

Euro zone GDP grew 3 per cent in 2007, and reached 2.1 per cent in 2010 and 2015.

Partly as a result of the growth, euro zone investments have turned in one of their best years since the single currency was born in 1999, confounding many who had bet on the bloc to be the disaster play of 2017.

The strong euro zone growth was powered by the biggest economy Germany, which shifted into an even higher gear in the third quarter, propelled by buoyant exports and rising company investments in equipment.

Seasonally adjusted German GDP rose 0.8 per cent on the quarter, beating a consensus forecast of 0.6 per cent, which was also the second-quarter growth rate.

Second biggest France grew 0.5 per cent on the quarter and 2.2 per cent in annual terms and the third biggest Italy beat expectations with a 0.5 per cent quarterly, and 1.8 per cent annual growth, supported by exports and domestic demand.

The Netherlands, the fifth biggest economy, grew an expected 0.4 per cent on the quarter after a record jump of 1.5 per cent in the previous three months, putting it on track for a 3.3 per cent expansion this year, the strongest since 2007.

Outside the bloc, euro zone growth also exceeded that of Britain, the EU's second-ranked economy which will leave the bloc in March 2019.

The British economy, affected by a drop in the pound against the euro since last year's Brexit vote, expanded 0.4 per cent on the quarter in sterling terms and just 1.5 per cent annually.

Separately, Eurostat said euro zone industrial production fell by 0.6 per cent month-on-month in September as expected by markets but rose 3.3 per cent year-on-year, slightly beating economists' average forecast of a 3.2 per cent increase.

"The outlook for production in the fourth quarter remains strong," ING's Colijn said. "New orders for manufacturing surged in August and businesses are reporting large backlogs of work according to the PMI survey.

"That should result in continued strength in industry in the final quarter of the year, adding to the possibility that our estimate for GDP growth in 2017 of 2.3 per cent could still be too low," he said.

The stronger growth supports the European Central Bank's decision last month to start weaning the euro zone off ultra-loose money by saying that from January it will halve the amount of bonds it buys every month to 30 billion euros (S$47.7 billion).

It nevertheless promised years of stimulus and left the door open to backtracking.