(Bloomberg) -- Hopes that the euro zone can stave off a recession got a boost as Germany defied expectations by reporting another quarter of economic growth, though momentum slowed dramatically in France and Spain.
Surging energy prices, record inflation and rising interest rates are weighing on output across the continent in the third quarter as a post-lockdown splurge on leisure and tourism fades.
But data Friday showed Germany managed to grow by 0.3% between July and September. Consumer-price growth from the region was mixed -- hitting the fastest pace since the data series began a quarter-century ago in France, while coming in well below estimates in Spain.
The slew of releases arrives just before what’s shaping up to be a challenging winter for Europe. While unseasonably warm weather is providing respite on heating bills, governments are spending hundreds of billions of euros to ease the cost-of-living crisis.
The European Central Bank is racing to wrest inflation back under control but may soon add to the pain as it raises rates beyond levels that support economic growth. It hiked borrowing costs by 75 basis points for a second straight meeting on Thursday.
Key Developments
- ECB Doubles Rate to Most in Over a Decade Despite Recession Fear
- Germany Now Seen Dragging Euro Area Into 2023 Contraction
- Europe’s Inflation Squeeze to Linger Even as Gas Prices Drop
Slovenian inflation (10:30 a.m.)
Inflation eased to 9.9% in October, dipping bellow 10% for the first time in five months as unusually warm weather helps curb European energy prices. Price caps on natural gas and electricity for households and small firms are also alleviating some pressure.
While soaring energy and food costs are still the main reason for elevated inflation, more than seven in 10 products are seeing price increases of more than 5%, according to central bank Governor Bostjan Vasle.
German GDP (10 a.m.)
Growth in Europe’s largest economy quickened to 0.3% from the previous quarter between July and September, surprising analysts who’d estimated that output contracted by 0.2%.
While Germany’s government is devising subsidies for most natural gas consumption after Russia slashed shipments, the Bundesbank sees output shrinking “considerably” this winter.
ECB poll of professional forecasters (10 a.m.)
Professional forecasters surveyed by the European Central Bank raised their inflation outlook for each year through 2024.
They now see consumer-price gains averaging 8.3% this year, 5.8% in 2023 and 2.4% in 2024. Core inflation, meanwhile, is expected to settle at 2.1% in the longer term, down from 2.2% in previous survey round.
ECB’s corporate contacts signal contraction (10 a.m.)
Top non-financial companies in the euro area expect an economic contraction toward the end of 2022, according to a summary of their interactions with European Central Bank staff.
While firms reported a “marked slowdown” in the three months through September -- particularly among energy-intensive businesses in the intermediate goods sector, and some consumer branches -- “contacts anticipated a further deterioration in activity, implying a contraction in the fourth quarter,” the ECB said in a report.
Bloomberg Economics on French inflation (9:22 a.m.)
Senior Economist Maeva Cousin:
“French inflation came in markedly above expectations in October, jumping to 7.1% from 6.2% in September. Most of the upside surprise was likely driven by stronger-than-anticipated food and energy inflation.
Government support is sheltering households from the worst of the cost-of-living crisis, but costs pressures remain strong and this support might not be enough to prevent a recession.”
- ECB officials speak (9:15 a.m.)
Several members of the ECB’s Governing Council weighed in on inflation on Friday.
Lithuania’s Gediminas Simkus called euro-zone price growth “simply too high,” urging another “substantial” interest-rate increase at the next policy meeting in December.
There’ll be more ECB hikes, according to Slovenia’s Bostjan Vasle, who said “we will judge their size at each session separately, depending on the inflationary and economic outlook.”
The ECB is under no obligation to repeat the 75 basis-point rate moves enacted at the last two meetings, France’s Francois Villeroy de Galhau said.
“Nothing is to be taken for granted,” he said. “We’ve said clearly that we’ll make decisions meeting by meeting in response to the economic data.”
Spanish GDP, inflation (9 a.m.)
Spain’s economy slowed dramatically in the third quarter as rapid inflation curbed consumption following a surprise jump in activity during the summer.
Gross domestic product advanced 0.2% from the previous three months, just below the 0.3% median estimate in a Bloomberg survey of analysts. A drop in household spending and weaker exports weighed on activity in the euro zone’s fourth-largest economy, data released Friday showed.
Providing some respite, however, inflation slowed for the third straight month in October as energy costs eased further. Consumer prices gained 7.3% from a year ago, down from September’s 9% increase and way below the 8.1% economists expected. Inflation has dipped from its 10.7% July peak as the government stepped in to limit energy costs.
Austrian GDP (9 a.m.)
Austria’s economy shrank by 0.1% in the third quarter as weaker global demand hurt appetite for its exports. GDP had jumped by 1.9% in the three months through June.
French inflation (8:45 a.m.)
Inflation quickened more than expected in October, reaching a record 7.1%. Economists had estimated an acceleration to 6.5%.
Thanks to efforts to restrain energy costs, France has had one of western Europe’s lowest inflation rates. But that may not last as the government plans to let household bills rise by as much as 15% from January, while limiting the aid it provides to businesses.
What’s more, price pressures are also becoming more broad-based -- this month they were driven by energy, food and manufactured goods. Inflation is likely to hit a new high around year-end, statistics agency Insee predicted this month.
Sweden GDP indicator (8 a.m.)
Sweden’s economy expanded in the third quarter, defying expectations of a contraction in the non-euro-zone country amid surging inflation.
Gross domestic product grew 0.7% in the three months through September from the previous quarter, on a seasonally-adjusted basis, according to preliminary data from Statistics Sweden. The data may fuel speculation that the Riksbank will opt for a bigger interest-rate hike next month.
Bloomberg Economics on French GDP (7:50 a.m.)
Senior Economist Maeva Cousin:
“We expect headwinds to intensify, tipping the economy into a recession over the last quarter of this year and the first quarter of 2023. Still, with government support continuing to cushion the hit, the downturn should remain mild.”
- French GDP, consumer spending (7:30 a.m.)
French growth slowed to 0.2% from 0.5% and came on the back of strong investment, though private consumption stagnated and trade was a drag.
But the expansion is set to grind to a halt this quarter, according to statistics agency Insee, which also sees inflation jumping to a record by December. With so much uncertainty, the Bank of France has issued a range of forecasts for 2023 -- spanning a 0.5% contraction in output to a 0.8% expansion.
How households react to reduced government assistance from January will be key. Businesses may also have to deal with less support after Finance Minister Bruno Le Maire warned it would be dangerous for public finances to provide limitless guarantees.
A separate publication on Friday showed third-quarter consumer spending was down 0.5% on the previous three months, with expenditure on food declining as the share of energy grew.