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Euro zone sees moderate uptick in growth; inflation misses forecasts

European Central Bank (ECB) President Mario Draghi.
Yves Herman | Reuters

The euro zone continued growing at a moderate pace in the third quarter of this year, the European statistical office, Eurostat, said Monday.

The euro area posted GDP (gross domestic product) growth of 0.3 percent in the last three months, compared to the second quarter of this year. This initial reading met analyst expectations in a Reuters poll. The 19-member economy saw growth of 1.6 percent year-on-year.

Inflation figures, released at the same time, also saw a rise in October. Flash Inflation figures hit 0.5 percent last, up from 0.4 percent in September. The main inflation driver was the services sector, according to official estimates, but the figure narrowly missed expectations of a 0.6 percent rise.

'Growth remains slow'

"The preliminary flash estimate of euro-zone (third quarter) GDP supports the message from earlier country data that the pace of growth remains slow," Jennifer McKeown, chief European economist at Capital Economics, said in a note after the data release.

Data released last week showed mixed economic activity across the 19-member bloc. Germany's purchasing managers' index went up to 55.1 in October from 52.8 in September. But, in France the figures were less optimistic, with French PMI falling to its lowest figure in two months at 52.2.

But, according to IHS Markit, domestic demand should support growth in the euro zone, although business investment could be limited due to several political uncertainties in the near future.

"We expect overall euro zone GDP growth to come in at 1.6 percent in 2016. However, we have concerns about euro zone growth prospects in 2017. Indeed, we suspect that euro zone GDP growth could ease back to 1.4 percent in 2017 as it is likely to be increasingly hampered by political uncertainties," Howard Archer, chief European economist at IHS Markit, said in a research note Monday.

Fewer inflation concerns?

The flash inflation figures were in line with market expectations, but core inflation remained subdued at 0.8 percent on the year. Frederik Ducrozet, senior Europe economist at Pictet Wealth Management, believes that inflation is likely to "move sharply higher" in the next few months as energy-base effects "really kick in."

Growth has remained fragile in the region despite five years passing since the euro zone sovereign debt crisis and inflation has slowly started to pick up again. The European Central Bank continues to prop up the economy with its quantitative easing and iterated at its last meeting that policy would be unchanged. It also gave no indications of plans to start tapering its asset purchase program, due to expire in March of next year.

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