Euro zone growth, inflation on benign path, keeping rate cut bets muted

FRANKFURT (Reuters) -Euro zone growth and inflation remain on a benign path, a slew of fresh data suggested on Friday, supporting economists' bets that no further European Central Bank rate cuts are coming in the near future.

Growth has been surprisingly resilient to trade uncertainty, thanks in part to a tight labour market, and inflation has been hovering near the ECB's 2% target all year, in line with long-standing projections.

While national data show big differences across the bloc, from a booming Spain to Germany's struggles to escape years of stagnation, the combined picture suggested steady inflation and continued, even if lukewarm, economic growth.

BIG VARIATIONS ACROSS THE BLOC

"None of today's large number of varied data releases suggests that growth or inflation will noticeably deviate from the ECB's baseline view in the near-term," Mateusz Urban at Oxford Economics said.

Inflation held steady at 0.8% in France, accelerated to 2.6% in Germany, eased a touch to 3.1% in Spain, and slipped to 1.1% from 1.3% in Italy.

When combined with numbers from other smaller countries, the data suggested that inflation in the 20-nation bloc as a whole was unchanged at 2.1%, a non-event for the ECB when rate-setters meet on December 18.

Policymakers' sanguine view is also likely to be supported by the ECB's own consumer expectations survey, which pointed to unchanged price growth expectations three and five years out, and indicated broadly steady income and spending plans.

Financial markets see almost no chance of an interest rate change next month, only a one-in-three chance of one last rate cut by the middle of next year.

GERMANY STILL STRUGGLING

Spending and jobless data from Germany were far from spectacular, but remain consistent with bets that Europe's largest economy is stable or expanding at the slowest possible pace.

Germany has been stagnant for three years as its industrial exports are losing market share on high costs and increasingly fierce Chinese competition, keeping consumer sentiment at home muted.

This pushed retail sales down 0.3% in October, a relatively weak performance. But the labour market held up, with the number of jobless broadly steady in November.

"The labour market has avoided a worst-case scenario... (and) the numbers will bring some relief, at least in the political debate," ING economist Carsten Brzeski said. "However, a turning point is not near, at least not yet."

RATE CUT DEBATE

While the ECB is unlikely to cut rates in December, talk of more easing could still resume in the new year.

Falling energy prices are likely to drag inflation below target in 2026 and some policymakers fear that low readings could weigh on expectations and perpetuate anaemic inflation.

But the ECB normally looks past energy price-induced volatility and focuses on the medium term. Philip Lane, the bank's chief economist, has also warned that price pressures excluding energy were still too high.

While the ECB is keeping the door open to more rate cuts, it made clear it was in no hurry to change policy and some policymakers even argue the bank may be done cutting, after halving the deposit rate in the year to June.

(Reporting by Balazs Koranyi; Editing by Alex Richardson)