The Eurozone’s economy registers significant growth

Despite deflationary tendencies snapping at its heels, the Eurozone registered a strong economic growth principally by the economies of France and Spain, its growth was 3 times the growth registered by the U.S. economy.

In this year’s first quarter, the Eurozone has managed to overcome years of poor heath and crisis and has witnessed the fastest growth in the past five years. Much of its growth has been contributed by France and Spain.

Its current economic position stands larger than it did before the onset of the financial crisis. The Eurozone has taken 8 arduous years to finally overcome the effects of the financial crisis with last April seeing the bloc falling into even deflationary tendencies.

Despite concerns whether the British economy will continue to remain in its fold, the Eurozone has blown past the U.S economy with its growth doubling from the last quarter. Such has been its pace, that it has beaten even the most optimistic expectations of analysts who had not predicted a spur in household consumptions and a rebound in investments.

Coming less than a year after the Greek economic crisis which nearly saw Greece ejected from the Eurozone, the bloc could do much better since it is currently weighed down by excess capacity, high unemployment, high debt levels, and diminished bank profits.

Despite these odd, the growth rate of the 19 countries in the block have jumped by 0.6% in this first quarter. Analysts had expected it to grow by 0.4%.

In comparison, the U.S economy grew at 0.5%, on an annualised basis during the first quarter, which effectively means a growth rate of 0.12% in the first three months of this year.

The Eurozone’s growth held steady at 1.6%, which is more than three times the U.S. growth rate for the same period.

The numbers have defied analyst’s predictions, who were expecting a slow down due to plunging energy costs. A steady fall in unemployment rates and buoyed by spending, the Eurozone has sailed through.

“The first months of the year were tumultuous with large stock market declines, growth concerns in the US, China and many emerging markets and plummeting confidence among businesses and consumers,” said Bert Colijn, an economist at ING in a note.

He went on to add, “Clearly, businesses and consumers have not acted on their gut feelings. Domestic strength in the Eurozone economy is key to current economic growth. This is mostly because of improvements in the job market.”

Although unemployment in the Eurozone is still high, it fell to 10.2% in March from its erstwhile 10.4% in February. This is the lowest unemployment rates have seen in the last four years, with Spain seeing the maximum improvement.

 

Deflationary Tendencies

Deflation has been the single biggest cause of concern for the European Central Bank, as fresh economic data pointed to deflationary tendencies in April.

Although consumer prices have fallen by 0.2% since the previous year, in December and in March, the European Central Bank pumped in fresh blood into the economy with its stimulus, in the hopes of boosting inflation.

In signs that are increasingly causing headaches to policymakers, core inflation, which excludes volatile energy and food prices, saw a slowing down, raising fresh fears that low energy prices are fuelling higher prices of goods and services.

The ECB is especially worried since if low energy prices were to start feeding into wages, breaking from the cycle of low inflation could become a sticky situation.

Peter Praet, the ECB chief economist, has defended the central bank’s policies arguing that only of a significant worsening of the inflation profile will warrant more robust stimulus measures.

“Deploying negative rates again in the future would require a distinct worsening of the inflation outlook. I don’t think we’re going to see these conditions materializing in the near future,” said Praet to Expansión, a Spanish newspaper.

“We shouldn’t be talking of new instruments,” Praet added.

Heading into the second quarter, the euro zone appears to remain on solid footing.

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Categories: Economy & Finance, Strategy

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