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Euro zone economy shows signs of growth

written by Bella Palmer
uk-economy

Industrial production increased by 1.8% on the month in August, a touch ahead of expectations, and was up 0.1% from a year earlier, driven by increasing demand for capital and durable consumer goods, Eurostat said

The euro zone economy showed some signs of life on Tuesday with a raft of indicators pointing to weak but still positive growth for a bloc that has been avoiding a recession for more than a year.

Industrial output expanded and lending demand increased, while expectations in a key German sentiment survey also increased more than predicted, offering some reassurance after key indicators tended to underperform expectations over the past month.

The figures are likely to reinforce bets that the bloc is still growing, even if at the slowest possible pace, but are unlikely to prevent the ECB from delivering an interest rate cut, which is now almost fully priced in.

Industrial production increased by 1.8% on the month in August, a touch ahead of expectations, and was up 0.1% from a year earlier, driven by increasing demand for capital and durable consumer goods, Eurostat said.

Output in Germany, the bloc's biggest economy, soared more than 3% on the month, the biggest rise among the bloc's larger economies, even if the annualised figure was still deeply negative.

High energy costs, weak demand from China and increased competition from other producers have weakened Germany's industry in recent years.

Still, expectations about industry remain lacklustre for the rest of the year, according to ING economist Bert Colijn. The list of concerns for eurozone industry is long at the moment, and it is pretty hard to see the start of a vibrant recovery for the sector at this point.

In another mildly hopeful sign for Germany, investor morale improved more than expected in October with the ZEW economic sentiment index advancing to 13.1 points from 3.6 points in September.

Expectations for low and stable inflation, bets on further rate cuts and some mild improvement in export demand all contributed to the better sentiment figures, the ZEW said.

It added that China's recent stimulus measures are also fostering some hope for both Germany and the wider euro zone.

The European Central Bank has cut rates twice already this year and is almost certain to ease again this week while also keeping a further move on the table for December as inflation is now close to its 2% target.

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