Euro Zone GDP surprises upside, impact on ECB’s decision

Euro-area GDP surprised to the upside on final reading. Previous flash estimate showed Euro Zone's quarterly growth would slow down to 0.3% from 0.5% prior, suggesting continued weakness in the region. However the economy is turning out to be not as weak as many had expected. On the contrary evidence suggests ECB's ultra-expansionary monetary policy is working fine and have started exerting impact on real economy.

• GDP grew by 0.4% q/q in second quarter, up 1.5% from a year ago.
• While businesses and government remains reluctant to capital spending GDP got the required boost from healthy household consumption.
• Gross capital formation was down by -0.1% but household consumption up by +0.3%, revised from +0.2% in flash estimate.

European Central Bank (ECB) is likely to maintain both its purchase target and purchase pace in the near term.

Any risks to early wind up is minimal, in spite of upward growth  revision as growth rate is still very weak compared to historical standard.

On the other hand, further expansion of asset purchase and pace is unlikely at this point, given higher growth would make hawkish Bundesbank chief more vocal against further asset purchase, unless situation deteriorates considerably going forward due to slowdown in China.

Euro is currently trading at 1.116 against Dollar.