Euro-Zone Q3 GDP was confirmed at -0.2% q/q in line with the preliminary reading and consensus expectations. This was the second consecutive contraction in the quarterly growth rate, which confirms that the Euro-zone is in recession. The annual rate was revised to 0.6% y/y from 0.7% y/y reported initially. The breakdown, which was available for the first time, showed private consumption stagnating in the third quarter, while investment contracted 0.6% q/q. Exports rose 0.4% q/q and imports 1.7% q/q, which means net exports detracted 0.5% points from the quarterly growth rate. Only government consumption and a build up of inventory levels prevented an even sharper contraction in the quarterly growth rate. All in all few surprises on the number, which highlights that the Euro-Zone is experiencing an across the board weakness in all sectors and forward looking indicators are pointing to ongoing contraction in economic activity in the last quarter of the year.
Meanwhile, Speculation of a record ECB rate cut today is mounting, after the Riksbank slashed rates by 175 bps. The Bloomberg poll for this week still predicted a median forecast of 50bp cut, which squared with official comments that a sharp cut may be counterproductive and that the ECB wants to hold back some ammunition. However, markets had always hoped for more and with the SNB slashing rates by 100 bps earlier in the month, the BoE set to cut rates by 100bp today and the Riksbank starting today's rate cut decisions with a 175 bps move speculation of a record ECB move are intensifying. JP Morgan now sees the ECB cutting by at least 100bp today. We agree that the central bank has sufficient room for bold cuts, the risk seems to be that markets may get carried away and that the ECB may once again disappoint and deliver less monetary easing today than many are hoping for. Unlike other central banks the Riksbank did not cut rates in November so it had some catching up to do, which may partly explain the extent of today's move.