Eurostat revises data on GDP, employment; EUR weakens against USD; The Eurozone economy has a lot to regain.

Eurostat recently revised its third-quarter gross domestic product figures downwards, showing that the eurozone economy grew less than initially expected, albeit at the fastest pace since 1995. Still, GDP still fell less than expected in the three months from June.

Quarter-on-quarter, GDP rose 12.5 percent (quarter-on-quarter), below the previous figure of 12.6 percent and against expectations. On a year-over-year basis, that number was also revised down to 4.3 percent in the third quarter, though that was better than expectations of 4.4 percent.

The agency attributed the recovery in the third quarter to growth in both consumer spending and business investment. Among the top performers were France, Spain and Italy, all of which saw double-digit GDP growth.

Employment rose 1 percent in the third quarter, better than an expected 2.8 percent decline. Eurostat noted that while the impact of the stimulus measures certainly helped employment levels, changes in the number of hours worked were more pronounced.

Despite the good news, the outcome of the Brexit negotiations remains uncertain, with the two sides unable to agree on key issues.

The EU has indicated its willingness to continue negotiations beyond the deadline, although the British prime minister plans to meet the president of the European Commission to discuss the issue.

Members of the European Union are also trying to reach a consensus on fiscal policy issues. Hungary and Poland are currently vetoing the implementation of a €2 trillion fiscal stimulus package, which may threaten their own funding if the other 25 eurozone members push for an exclusionary ad hoc deal. A delay in the implementation of this stimulus package could hinder the eurozone’s economic recovery and raise concerns about the fate of the union.

Last week, important data on the economic situation of the Eurozone was published. The eurozone’s manufacturing sector grew at a faster pace in November to 53.8 after being at 54.8 in October, while the services sector fell to 41.7. The business sector also fell to 45.3, although higher than expectations of 45.1.

The core consumer price index rose 0.2 percent in November, in line with analysts’ expectations, according to preliminary data. It decreased by 0.3 percent year-on-year, below expectations of 0.2 percent.

Retail sales rose 4.3 percent year-on-year, more than the 2.7 percent forecast. In monthly terms, they rose 1.5 percent, also higher than expected, as analysts had forecast 0.8 percent.

German industrial production rose 3.2 percent in October after rising 2.3 percent in September. Analysts attributed the increase to a rise in Germany’s auto sector, which gained 10 percent during the month.

The euro has underperformed against the US dollar so far this week, falling 0.03 percent and snapping a three-week winning streak. This month, the euro gained 1.57 percent against the dollar, continuing the positive trend that began in November.

On the other hand, the euro rose 0.77 percent against the pound sterling, rising for the third week in a row. In monthly terms, it gained 1.53 percent, breaking a two-month streak of losses.

Somewhat surprisingly, the euro held steady after markets learned of a recovery in the German industrial sector, although this makes sense given the underlying risks facing European markets due to the impasse in negotiations and the progress of the COVID-19 pandemic.

Given the fiscal impasse, the ECB is now expected to expand its bond-buying program. Analysts predict the central bank will add 500 billion euros to its emergency bond-buying program and expect it to be extended beyond June 2021.

As we mentioned earlier, euro area gross domestic product contracted less than expected year-on-year, mainly due to an increase in consumer spending and business investment levels, supported in turn by an increase in government spending.

Despite the good news, the eurozone economy still has a long way to go before it returns to pre-pandemic levels.

“The gap remains the same as in 2008, although we have to remember that even in the third quarter the economy was not completely open,” commented an ING analyst. “Still, it explains why we don’t expect the economy to fully recover before 2022 because there’s a lot of ground to reclaim.”

Inflation is still far from the ECB’s target as the latest consumer price index showed a drop of 0.3 percent.

The unemployment rate signals a slight deterioration in the labor market to 8.4 percent after September’s 8.3 percent.


  • On Thursday, Eurostat will publish the Consumer Price Index for November.

  • On Friday, IHS Markit will release preliminary December PMI data.

  • The German Federal Statistical Office also publishes the producer price index on Friday.

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