Euro-Area Growth Surged by Record Before New Setback: GDP Update

(Bloomberg) -- The euro-area economy surged by a record in the third quarter in a rebound that’s now being derailed by an intensifying pandemic and new government restrictions on businesses across the region.

The bloc grew 12.7%, well ahead of the 9.6% pace forecast by economists. France, Italy and Spain all recorded double-digit increases, and GDP in Germany jumped 8.2%. Those bouncebacks follow huge slumps in the previous three months, when activity came to a near halt amid lockdowns to contain the coronavirus.

More up-to-date indicators paint a far gloomier picture, and the economy is now at risk of slipping back into recession. With the inflation rate below zero, the European Central Bank has acknowledged the increasing danger, signaling it will ramp up stimulus again in December.

Key Developments:

• Holzmann says it’s right to assume Lagarde signaled stimulus
• ECB pushes governments to get on with spending
• German virus infections exceed 500,000 cases -- a trend Merkel called “dramatic”

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Euro-area GDP, inflation (11 a.m. CET)

The good and the bad in the euro-area economy were on display on Friday. Third-quarter GDP surged almost 13% in a post-lockdown rebound, but separate figures highlighted the ECB’s long struggle to revive inflation. Headline consumer prices fell 0.3% year-on-year in October, while the core rate stayed at a record low just above zero. ECB President Christine Lagarde said Thursday prices may keep falling into early 2021, but denied the economy was experiencing deflation.

Germany updates economic forecasts (10:15 a.m. CET)

German Economy Minister Peter Altmaier confirmed that the government still expects a slightly less severe contraction this year than previously feared. GDP may shrink 5.5% versus a September prediction for 5.8%. The new forecasts, which include the latest virus restrictions, see growth of 4.4% in 2021.

Politicians from across the euro area attempted to shore up confidence on Friday, arguing that the rebound after the first lockdown is proof that economies will also be able to weather the latest restrictions.

Spanish Economy Minister Nadia Calvino expressed optimism over the recovery path, even though uncertainty remains high. “The priorities continue to be the same -- working in a coordinated way in Spain and in Europe to tackle the pandemic and continue to support businesses and families.”

In France, Finance Minister Bruno Le Maire put a positive spin on the government’s downward revision to the 2020 outlook. “The economy has a considerable capacity to rebound,” he said on France Inter radio. “As soon as 2021, we will be able to get growth figures that are good growth figures.”

Italian, German GDP (10 a.m. CET)

In Italy, the first European country to be hit by the pandemic, the economy grew 16.1% in the three months through September, well ahead of the 11.1% forecast. Echoing the pattern elsewhere in the region, Germany also enjoyed a big rebound. Private consumption, equipment investment and a strong pickup in exports contributed to the expansion, the statistics office said.

Inflation forecasts cut (10 a.m. CET)

Professional forecasters surveyed by the ECB lowered their inflation outlook for this year and next, underpinning the case for more monetary stimulus. In the longer term, the rate is expected to climb back toward the central bank’s goal -- a projection for 2025 sees consumer-price growth averaging 1.7%. The poll was conducted Oct. 2-9, before governments imposed new lockdowns. Forecasters were also slightly less pessimistic about the economy than three months ago, though they said risks are still “substantially to the downside.”

Austrian GDP, French inflation (9 a.m. CET)

The Austrian economy grew 11.1% in the third quarter following a 12.1% slump in the previous three months, deeper than previously estimated. In France, there was disappointing inflation news, with price growth stagnating in October. Euro-area data due later Friday is forecast to show the inflation rate in the 19-country bloc at -0.3%, below zero for a third month.

Spanish economic growth rebounded after lockdown (9 a.m.)

Spain’s third-quarter performance followed the lifting of a strict lockdown that sent GDP plunging almost 18% in the previous three months. The country is on track for one of the euro-area’s deepest contractions this year. It’s been particularly hard-hit by the pandemic because of its dependence on the now-suffering tourism industry, the relatively small size of its companies -- which leaves them financially vulnerable -- and difficulties in the labor market.

ECB’s Holzmann urges look at all options (8:34 a.m. CET)

ECB Governing Council member Robert Holzmann says it’s right to assume Lagarde signaled more stimulus, but a final decision will be made at the December meeting. He downplayed the effectiveness of another interest-rate cut and said the ECB may have to be innovative.

“We put a lot of money on the table but inflation hardly moved,” he said on Bloomberg Television. “There is a rising recognition that quantity by itself doesn’t do the trick. You have to look more into the structure and see how this can be fine tuned.”

German Retail Sales (8 a.m. CET)

The closure of bars, restaurants and some stores across parts of Europe means domestic demand will take a big hit this quarter. That side of the economy was already looking a bit wobbly. German retail sales fell a bigger-than-expected 2.2% in September, while earlier figures showed French consumer spending dropped 5.1%, leaving it below its pre-crisis level.

French GDP (7:30 a.m. CET)

All parts of the French economy rebounded sharply, with a particularly strong surge in consumer spending to a level only 2.1% below the third quarter of 2019. The recovery in investment was less vigorous, reaching a level 5.1% below last year’s.

The country will aim to limit the drop in economic activity during the country’s second lockdown -- starting Friday -- to 15%, half the decline recorded in the spring, according to French Finance Minister Bruno Le Maire. The government is reactivating a solidarity fund to help companies weather the crisis.

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