Euro zone economy grows faster than expected in third quarter

Brussels: The euro zone economy grew faster than expected last quarter and unemployment fell to its lowest in almost nine years, backing up the European Central Bank's move to begin reducing its bond buying despite slightly soft inflation this month.
The European Union's statistics office Eurostat estimated that the gross domestic product of the 19 countries that use the euro grew 0.6 per cent in July-September from the previous three months and was 2.5 per cent higher than in the same period of 2016.
Economists polled by Reuters had expected a 0.5 per cent quarterly rise and a 2.4 per cent year-on-year gain.
"The better-than-expected GDP print — along with our leading indicators — suggests that growth remains robust, thus supporting the recent European Central Bank (ECB) quantitative easing (QE) recalibration," Morgan Stanley economists Daniele Antonucci and Joao Almeida wrote in a note.
Last week the ECB took its first step towards 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. It nevertheless promised years of stimulus and left the door open to backtracking.
The economic growth helped bring down euro zone unemployment to the lowest level since January 2009, beating market expectations.
The unemployment rate fell to 8.9 per cent of the workforce or 14.513 million people in September from a downwardly revised 9.0 per cent, or 14.609 million, in August. Economists polled by Reuters had expected an unemployment rate of 9.0 per cent.
But consumer price growth in October eased to 1.4 per cent year-on-year, a Eurostat estimate showed, from 1.5 per cent in the previous two months. The ECB wants to see headline inflation below but close to 2 per cent over a two-year horizon.
The slower inflation was mainly because of slower growth of energy prices, which rose 3.0 per cent year-on-year in October, slowing from 3.9 per cent in September, offsetting equally volatile unprocessed food prices which rose 2.8 per cent after 1.5 per cent in September.
Measured without these two most volatile components, inflation slowed to 1.1 per cent in October from 1.3 per cent in September.
"Strong growth supports the notion that core inflation should eventually normalise further, while headline inflation is likely to print lower for some time and follow a V-shaped trajectory, to come closer to the ECB target from late 2018," the Morgan Stanley analysts wrote.
"Despite today's downside surprise, core HICP has inflected higher since the 'local' low of 0.7 per cent in March, albeit gradually and from a low level. It should get back to its long-term average of 1.5 per cent in the second half of 2018," it said.