Eurozone consumers finally start spending in boost to GDP growth
PRIVATE consumption in the eurozone jumped by the most in two years in the third quarter, offering hope that shoppers are finally starting to power an economic recovery.
Household expenditure increased 0.7 per cent from the previous three months, while investments advanced by 2 per cent, Eurostat said on Friday (Dec 6). Trade was a drag, leaving overall gross domestic product (GDP) growth at 0.4 per cent – as reported in an initial estimate.
Europe has long been expecting a boost from consumers as incomes grow, inflation cools and interest rates fall. Price growth temporarily dipped below 2 per cent in September. The European Central Bank expects it to durably meet that goal in 2025.
Wages, meanwhile, have risen strongly following the inflation spike in recent years. Negotiated pay surged in the third quarter by the most since the euro was introduced in 1999.
That pace is unlikely to last, however, allowing the ECB to lower borrowing costs more quickly. They’re set to cut for a fourth time since June next week, with analysts expecting a series of further reductions until the deposit rate reaches 2 per cent.
A key question is how sustainable the rebound in spending will prove. Business surveys have pointed to flagging momentum in the economy as the services sector begins to suffer alongside manufacturing.
The labour market, which has so far remained resilient to economic weakness, is now showing signs of softening. While unemployment is still stuck at a record low, jobs growth has been easing and industrial firms plan more layoffs.
Germany’s biggest labour union, IG Metall, recently agreed on a deal that economists saw as moderate. ECB Executive Board member Isabel Schnabel told Bloomberg last week that “we can expect a deceleration in wage growth, and the most recent wage negotiations, for example in Germany, were not very strong.”
Officials have also been keeping a close eye on corporate profits and workers’ productivity to get a full sense of euro-area price pressures. Based on hours worked, the latter rose 0.5 per cent from a year ago in the third quarter, Eurostat said. BLOOMBERG
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