The Euro zone experiences a two-year growth high of 0.4%, surpassing forecasts.

• The third quarter saw the euro area economy grow 0.4%, exceeding predictions of a 0.2% increase.
• While Germany managed to avoid a recession, Spain and Ireland experienced the strongest growth rates in Europe.
• This year, the European Central Bank is predicted to reduce interest rates by four percent.

The European Union's statistics agency revealed on Wednesday that the euro zone economy expanded by 0.4% in the third quarter.

Reuters polled economists who predicted 0.2% growth after the bloc's 0.3% expansion in the second quarter.

One of the highest growth rates was recorded in Spain, with an increase of 0.8% from the previous quarter, while Ireland, known for its volatile figures due to the presence of many international corporations, also experienced growth of 2%.

Despite some economists predicting a recession, Germany, the euro zone's largest economy, experienced a 0.2% growth in the third quarter, allowing it to avoid a recession. This growth came despite a downturn in its key manufacturing sector.

"Despite avoiding a technical recession, Germany's economy is still almost the same size as it was at the start of the pandemic, according to ING analysts who described the country as a "draw for unfavorable economic news" in a Wednesday report."

Business activity and consumer confidence in the euro zone may gradually improve in the upcoming months due to lower interest rates and decreasing inflation, according to analysts.

The ECB cut rates for the third time this year at its October meeting due to persistent signs of weak activity in the euro area, as headline inflation came in at 1.7% in September, according to a final reading.

The ECB fully priced another 25-basis-point cut from its key rate, the deposit facility, which is currently at 3.25%, in its last meeting of the year in December.

During her October press conference, ECB President Christine Lagarde stated that the central bank's Governing Council discussed a 25-basis-point reduction.

The possibility of the ECB opting for a larger half-percentage-point reduction in interest rates has been increasingly discussed over the last month. This has come as some ECB policymakers have acknowledged that they may soon have to address the ECB's pre-Covid-19 issue of persistently low inflation that is below the institution's 2% target.

According to Franziska Palmas, senior Europe economist at Capital Economics, the ECB will not be deterred from a December rate cut despite stronger-than-expected growth, and she forecasts a reduction of 50 basis points.

According to Palmas, the Eurozone's GDP growth rate would decrease in the fourth quarter, with Germany's manufacturing sector continuing to lag behind and Italy facing challenges due to the conclusion of tax incentives for the construction industry, while inflation would fall short of the ECB's three-month forecasts.

According to Kamil Kovar, senior economist at Moody's Analytics, the upcoming GDP figures will be accompanied by an increase in headline inflation, which will put an end to any discussions about a significant reduction in interest rates.

Euro zone inflation figures for October are due on Thursday.

According to Kovar, the report confirms that the euro zone is not currently in recession, as growth is splendid in Spain and solid in France, thanks in part to the summer Olympics.