Euro area advance 3Q GDP numbers to remain in focus

The Eurozone economy is due to release its advance 3Q GDP numbers this Friday. Growth likely held nearly steady at 1.6% YoY in the third quarter (0.4% QoQ, sa), up modestly from 2Q's 1.5%. At the economy level, trends are likely to be varied. While Spain might maintain circa 3% pace in second half of the year, France is expected to climb out of stagnation. German output however might ease, given the moderation in confidence indices and soft production numbers. 

At the aggregate level, consumer and business surveys point to stabilisation in growth conditions. European Commission's economic sentiment indicator edged back to four-year highs, while industrial confidence neared a six-quarter high. Inflation continued to ease on a combination of weak cost-push and demand conditions. Retail sales volume improved but on value terms indices these were little changed given weak cost pressures. High unemployment rates and tepid wage growth point to slack in the economy, keeping a lid on price pressures. 

Industrial production meanwhile rose 1.7% YoY in Jul-Aug, narrowly better than 1H's 1.3%. Investment spending trends are looking up, but sluggish capacity utilisation and weak credit growth suggest underlying momentum remains tentative. On the trade front, with the euro off the post-QE lows, export growth stagnated at 6% in Jul-Aug, little changed from the start of the year. The net exports position however is likely to support headline growth as imports eased to 2% in Jul-Aug from 2.6% in 1H, boosting the trade balance. 

Overall, growth is expected to improve at a gradual pace, with the full-year estimate at 1.4%, helped by favourable domestics by way of low inflation, improving financial conditions, accommodative policy stance and moderation in fiscal consolidation efforts. Downside surprises on the growth front and inflation will necessitate further monetary easing when the European Central Bank (ECB) meets in early-December.