Written by Balazs Kolanyi
FRANKFURT (Reuters) – The euro zone economy showed some signs of life on Tuesday, with a number of indicators showing tepid but still positive growth for the eurozone, which has avoided recession for more than a year. Ta.
Industrial production expanded, loan demand increased and expectations in Germany's main sentiment survey rose more than expected, after key indicators trended weaker than expected over the past month. It gave me a certain sense of security.
The numbers are likely to support the view that the European Union is still growing, even at the slowest possible pace, but will prevent the European Central Bank from cutting interest rates, which are currently almost fully priced in. Not likely.
According to Eurostat, industrial production in August rose by 1.8% from the previous month, slightly above expectations, and by 0.1% from the same month last year due to increased demand for capital goods and durable consumer goods.
Production in Germany, the region's largest economy, rose by more than 3% in the month, the largest increase among the region's large economies, although it was still significantly negative on an annualized basis.
High energy costs, slowing demand from China and increased competition from other producers have weakened German industry in recent years, raising questions about the viability of the country's industry-based economic model. .
“Yet, expectations for the industry remain lackluster for the rest of the year,” said Bart Collin, an economist at ING. “The list of concerns for the euro area industry is long at the moment…and it is quite difficult to see the start of a strong recovery for the sector at this point.”
In another slight sign of hope for Germany, investor morale improved more than expected in October, with the ZEW business confidence index rising to 13.1 points from 3.6 points in September.
ZEW said low and stable inflation expectations, expectations for further interest rate cuts and some modest improvement in export demand contributed to the improved sentiment.
He added that China's recent economic stimulus measures also offer some hope for both Germany and the wider eurozone.
The ECB has already cut interest rates twice this year, and with inflation now within range of its 2% target, it is almost certain to cut rates again this week, with another rate cut in sight in December. I'm putting it in.
That would take the rate cut to as much as 1 percentage point and factor in further rate cuts next year, suggesting investors expect the benchmark to be halved from its previous high of 4%.
Rising demand for loans, a precursor to sustained economic growth, also reflects expectations for lower interest rates.
Demand for bank loans, a key source of funding for the corporate sector, rose in the third quarter, with household mortgages leading the expansion and expected to rise further in the last three months of the year, the ECB said, based on a survey. announced. Top lenders.
Loan growth has remained above zero for most of the year as high interest rates and slowing economic growth depress demand and keep the region out of a years-long recession, making the outlook bleak across the region.
In a quarterly survey of 156 large financial institutions, the ECB said: “Banks reported a modest net increase in demand for loans and credit facility drawdowns from businesses for the first time since the third quarter of 2022, but overall continued to decline.” “Net demand for mortgage loans has rebounded strongly.”
The ECB said lower interest rates had boosted demand for corporate loans but had little impact on investment. Among residential customers, demand increased due to lower interest rates and improved housing market prospects.
This quarter, the bank expects further growth in net demand across all loan segments, especially mortgages.
(Reporting by Balazs Koranyi Editing by Christina Fincher)
