The European Sweet Spot

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What's going on?

Things are looking swell for people in the eurozone, as a string of data estimates released on Tuesday showed economic growth and jobs were better than expected in the third quarter of the year, while price rises slowed in October. Let the good times roll!

What does this mean?

Generally, economic growth means people and businesses are doing better, which tends to allow businesses to charge more for their products (at least in theory). But that isnt quite happening in the eurozone right now: the economy experienced faster-than-expected growth from July to September, but inflation is falling, i.e. it appears that companies didnt raise prices as much as one would expect.

Why should I care?

For you personally: Youre in an economic sweet spot.


Probably due to the growing economy, the unemployment rate keeps falling: its now at its lowest level since the dark days at the beginning of 2009. The lower unemployment rate suggests it should be easier to find a job, and the economys better-than-expected growth suggests jobs should pay better as companies are doing well (this already appears to be happening: data out last month showed eurozone wage growth hit a two-year high). At the same time, the slower price growth means your cash will go further!

The bigger picture: Low inflation is a double-edged sword.


While slow price rises make life easier for consumers, they can suggest vulnerabilities in the economy: maybe businesses arent confident enough to raise prices because consumers are already stretched, for instance. Also, inflation helps erode the value of debt, making it easier to pay it back in the future (and European companies and governments have a lot of debt). Higher inflation would probably be beneficial to the eurozone economy, partly because companies (and governments) could, in effect, reduce their debt and free up money to spend on economically productive things (like building new factories). This is a major reason that the ECB said last week it would only very patiently pare back its policies designed to increase inflation.

Originally posted as part of the Finimize daily email.

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