Germany Puts Euro-Area Economy in Line for Best Growth in Years

(Bloomberg) -- The euro-area economy maintained its solid pace of expansion in the third quarter, keeping it on track for its best annual performance in a decade.

Gross domestic product rose 0.6 percent in the period, unchanged from a flash estimate, the European Union’s statistics office said Tuesday. In Germany, the region’s largest economy, expansion accelerated to 0.8 percent, while Italy’s picked up to 0.5 percent.

Germany Puts Euro-Area Economy in Line for Best Growth in Years

The euro rose after the German figures and added gains through the day. It traded up 0.7 percent at $1.1745 at 4:20 p.m. Frankfurt time.

Supported by monetary stimulus from the European Central Bank, the economy of the single currency has picked itself up from a period of record unemployment and near deflation. Now, the European Commission says its heading for its best growth since before the financial crisis and it’s being cited by the IMF as the main reason for a global growth upgrade last month.

In Germany, where gross domestic product was driven by exports and investment, the latest good-news figures come as Chancellor Angela Merkel pushes on with coalition talks. While the solid economy and low unemployment helped her on the election campaign, it’s so far not got her over the line in forming a government. Ahead of a self-imposed deadline of Thursday, factions in the complex multi-party negotiations remain far apart.

While Germany’s economic strength is good for both the euro area and the global outlook, the pace also means the nation is potentially straining against its maximum capacity, with repercussions for inflationary pressures.

“You can feel the German economy is really humming along,” Holger Sandte, chief European analyst at Nordea Markets in Copenhagen, said before the release. “We are looking at a pretty robust picture so that raises the question: where is the speed limit?”

Other parts of the euro zone are also turning the corner. Italy, the third-largest economy, is forecast to expand 1.5 percent this year, which would be its best performance since 2010. The euro region may grow 2.2 percent, according to predictions compiled by Bloomberg this month.

The ECB is taking credit for pulling the region out of a crisis that threatened the survival of the currency union. Vice President Vitor Constancio said Monday that policy makers have been “highly successful” in driving the recovery with interest-rate cuts and stimulus programs.

His Executive Board colleague Benoit Coeure argued that the region’s upswing is probably the strongest in almost two decades in terms of “robustness and balance,” creating scope for structural reforms that would come as policy makers scale back monetary stimulus.

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