The eurozone’s economy has showed more signs that it has escaped its post-crisis doldrums, as figures published on Wednesday indicated that growth in Europe’s single currency area accelerated at a faster pace than in either the UK or the US in the first quarter.
An early estimate of gross domestic product suggested the eurozone recovery remains on track, with the region’s economy matching its solid performance at the end of last year in the opening three months of 2017.
The single currency area’s economy grew 0.5 per cent in the opening quarter, according to a flash estimate from Eurostat, the European Commission’s statistics bureau, compared with the UK’s expansion of 0.3 per cent and growth in the US at an annualised rate of 0.7 per cent. The region’s performance also outpaced the broader EU, which grew by 0.4 per cent.
The sturdy start to the year for the single currency area was in line with analysts’ expectations, following on from the release of positive data that have increasingly led economists to reconsider their outlook for the region.
“The [GDP] figure confirms the view that the eurozone could become the positive global growth surprise of the year,” said Carsten Brzeski, economist at ING-DiBa, a bank.
Howard Archer, economist at IHS Global Insight, said: “Certainly the risks to our 2017 growth forecast of 1.7 per cent look increasingly slanted to the upside.”
Good news on growth has raised the chances that policymakers at the European Central Bank will begin discussions this year on phasing out their €60bn-a-month asset purchase programme, made as part of a landmark quantitative easing plan to revive the region’s economic fortunes.
After years of underperformance, the eurozone’s economy is now doing surprisingly well. A cocktail of cheap credit, low-cost oil, a weaker euro and less austerity has helped spur a recovery that is growing in strength and breadth.
“The weak euro and ECB stimulus is helping drive an increasingly robust-looking upturn, which is being further supported by the improving labour market,” said Chris Williamson, economist at Markit. “Political risks remain the main threat to growth, and could subdue the expansion in coming months. However, for now, the data paint a picture of reassuringly solid-looking economic upturn.”
Unemployment is at its lowest level for seven years, while recent indicators of business and consumer confidence have hit multiyear highs despite the risk of Marine Le Pen causing a political upset in France and securing victory in this weekend’s presidential run-off. Ms Le Pen has pledged to take France, the region’s second-largest economy, out of the single currency area.
Although underlying price pressures remain weak, Mario Draghi, ECB president, said earlier this year that policymakers were now confident that they had removed the threat of a severe bout of deflation. With that threat now gone, policymakers have gradually adjusted their message on the economy as they start to plan on rolling back QE.
“If and when political uncertainties fade away further after Sunday’s final round of the French presidential election, the cyclical upswing should gain further momentum, gradually increasing pressure on the ECB,” said Mr Brzeski. “In fact, if this scenario unfolds, the ECB would be more than happy to start looking for the exit from the current ultra-loose monetary policy.”
Policymakers are expected to say in June that the risks to the economic outlook are no longer “tilted to the downside”, but are instead balanced. A change in the narrative is an important step towards a debate on tapering bond purchases, with analysts expecting that discussion to come towards the end of the summer.