Euro-area growth stays firm, leaving ECB room to raise rates

Growth held up despite shocks

The euro-area economy is still taking hits like the Iran war and posting gains anyway. Eurostat reported a 0.4% expansion in the third quarter, in line with the October flash figure and ahead of October's analyst expectations for about half that pace.

What policymakers are saying

The ECB has lifted rates twice since the Middle East conflict drove energy costs higher. With inflation running at double the 2% goal and the economy absorbing those hikes, policymakers have signaled another move could come in December.

In a Bloomberg Television appearance this week, Bundesbank President Joachim Nagel said policymakers may need to begin restraining growth to hit the inflation target. He said another quarter-point increase would place the deposit rate at the top of the range considered neutral for economic activity.

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Another worry is that the Iran war, along with the recent surge in bond yields, could put a drag on the economy. The ECB currently sees risks tilted to the downside for growth and to the upside for inflation.

The near-term outlook

In plain English: resilience plus inflation at twice target keeps the door open to tighter policy. If officials deliver another 0.25 percentage point increase, the deposit rate would sit at the ceiling of what they consider neutral - a reminder that rate sensitivity across your portfolio, from banks to other rate-linked sectors, is still in play.

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