Most of the euro zone's biggest economies expanded in the third quarter, avoiding a recession that even Germany was widely expected to endure.
Growth accelerated in France and was stronger than expected in Spain. Germany's surprise 0.2% rise in gross domestic product caught analysts by surprise, but the statistics for the past three months have been revised down significantly.
The weak spot was Italy, where production was unexpectedly flat.
On the inflation front, separate data from Spain shows that consumer price inflation has accelerated slightly to 1.8%, but remains within the European Central Bank's 2% target.
Wednesday's figures could allay some of the concerns about Europe's economy that were expressed last week as finance officials gathered in Washington for a meeting of the International Monetary Fund. Some ECB policymakers say the deteriorating outlook could necessitate a significant rate cut, while others are cautious.
The euro soared, and German government bonds erased their gains. Traders have given up bets on an ECB rate cut, pricing in a roughly 25% chance of a 0.5 percentage point cut in December. Earlier this month, the implied probability was 50%, according to swap prices.
The currency traded 0.3% higher at $1.0859. The yield on German 10-year bonds was flat at 2.34%.
The biggest concerns center on Germany, where its manufacturing industry faces declining competitiveness, which executives blame on high energy costs, overregulation and a lack of skilled staff. . Uncertainty has led consumers to increase their savings instead of using the pay increases they received in recent months.
Countries that focus on services are faring better these days. Private-sector production rose even faster in October outside France and Germany, according to S&P Global's Business Survey.
Thanks to the Olympics, France was able to temporarily overcome a fundamental weakness that was weighing down its finances. As in Spain, household consumption and public spending were the main drivers.
Meanwhile, Germany's economic downturn is increasing its impact on the long-resilient labor market. The number of unemployed rose by 27,000 in October, but economists had expected a rise of just 15,000. The unemployment rate remained at 6.1%.
Austria's GDP grew by 0.3%, the most in two years, supported by a recovery in consumption, while Lithuania's GDP growth accelerated.
The improvement in France's economy comes as a relief to the government, which is facing a ballooning budget deficit that is undermining investor confidence. Prime Minister Michel Barnier is trying to push through unpopular spending cuts and tax increases through a parliament that lacks a majority as borrowing costs rise compared to European countries.
The effects of the Olympics will ease in the fourth quarter, which will likely weigh on growth. This will further increase downside risks due to political uncertainty, tighter funding conditions, and fiscal consolidation. It expects the economy to contract slightly this quarter, with full-year growth at just 1.1%.
Maeva's cousin
Bloomberg Senior Economist
This year's strong economic expansion has been a boon for President Emmanuel Macron, but digging into the data shows investment fell by 0.8% over the same period. Separate data showed that consumer spending growth slowed in September. Persistent weakness in these areas is the main reason for the sharp decline in tax revenues, further straining public finances.
The far-reaching effects of that pressure are becoming clear. Consumer confidence unexpectedly fell this month for the first time since April, leaving households feeling pessimistic about future living standards and unemployment becoming a bigger concern.
The Eurostat data released on Wednesday includes preliminary economic data from 13 EU countries, including the EU's four largest economies but not Luxembourg or the Netherlands in fifth place.
VW plans to close at least three factories in Germany and cut thousands of jobs
(Additional reporting from Luxembourg Times.)
