The euro-area economy probably grew at the fastest pace in almost two years in the first quarter, underpinned by the start of the European Central Bank’s largest-ever stimulus program.
The 0.4 percent expansion forecast by economists would be the strongest since the second quarter of 2013 and follow the 0.3 percent posted at the end of last year. It would also be the first time since 2011 that the 19-nation region exceeds quarterly growth recorded in U.K. and the U.S.
The economy has benefited from the sharp drop in oil prices in the second half of 2014, a weaker currency and a boost to confidence from the prospect of ECB government-bond purchases that finally started in March.
Policy makers have warned that the upswing may not be sustainable unless governments step up economic reforms, while there are also risks related to the crisis threatening Greece’s membership of the union.
“I would not celebrate, but I think it’s likely that the economy is now approaching cruising speed,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan.
“We still have some countries where, net of the external factors, the underlying growth trend remains very weak -- too weak.”
While growth in France, the region’s second-largest economy, is projected to accelerate to 0.4 percent from 0.1 percent, and Italy is poised to register expansion for the first time since 2013, their full-year performances will lag that of the euro area as a whole.
The European Commission raised its outlook for the region on May 5, predicting gross domestic product will increase 1.5 percent this year.
Robust Recovery
Growth in Germany, Europe’s largest economy, probably slowed to 0.5 percent at the beginning of the year from 0.7 percent amid weak momentum in engineering and the car industry.
The Bundesbank still sees the nation on track for a “quite robust” recovery this year. German, French and Italian reports for the January-March period are due on Wednesday before Eurostat releases region-wide data at 11 a.m. in Luxembourg. Forecasts from the 42 economists in a Bloomberg survey range from growth of 0.3 percent to 0.6 percent.
From a year earlier, gross domestic product probably rose 1 percent. By contrast, Britain’s economy grew 0.3 percent in the first quarter from the prior three months, while the U.S.’s expanded 0.1 percent in unannualized terms.
“The economic situation and the short-term outlook for the euro area are currently brighter than they have been for several years,” ECB President Mario Draghi said on April 17. He added that the “sluggish pace at which structural reforms are being implemented” will likely weigh on growth.
Structural Reforms
Not so in Spain, where the government has liberalized the labor market and tackled the legacy of bad debt held by banks since being hit by the crisis. The economy expanded 0.9 percent in the first quarter, the fastest pace in seven years, and will grow at nearly twice the speed of the euro area this year.
“We had a lot of positive tailwinds at the beginning of the year, the weaker euro, the weaker oil prices, the signaling effect of quantitative easing,” said Anatoli Annenkov, senior economist at Societe Generale SA in London.
“There’s been a lot of things aligning for a good first quarter.” Business confidence rose to the highest level since mid-2011 in March, when the ECB started purchases under its 1.1 trillion-euro ($1.2 trillion) QE plan. Since then, the central bank has amassed 109 billion euros worth of public-sector debt.
Stimulus Fading
While the program has contributed to a turnaround in bank lending and helped rein in a slump in consumer prices, some observers aren’t yet convinced of the strength of the recovery.
Stimulus from weaker oil and a lower euro is now fading, with Brent crude rising almost 40 percent since mid-January and the single currency up 7 percent against the dollar since mid-March.
Greece’s crisis has also yet to be resolved, though euro-area finance ministers moved a step closer to a deal that could release funds to the cash-strapped nation at talks on Monday. Dutch Finance Minister Jeroen Dijsselbloem said the parties are “making faster progress” toward an agreement.
“At the moment, it looks quite good because of the fall in energy prices, and that will boost the economy for a while,” said Christoph Weil, senior economist at Commerzbank AG in Frankfurt.“But toward the end of the year the dynamic will diminish again. It’ll prove a straw fire.”
bloomberg.com
The 0.4 percent expansion forecast by economists would be the strongest since the second quarter of 2013 and follow the 0.3 percent posted at the end of last year. It would also be the first time since 2011 that the 19-nation region exceeds quarterly growth recorded in U.K. and the U.S.
The economy has benefited from the sharp drop in oil prices in the second half of 2014, a weaker currency and a boost to confidence from the prospect of ECB government-bond purchases that finally started in March.
Policy makers have warned that the upswing may not be sustainable unless governments step up economic reforms, while there are also risks related to the crisis threatening Greece’s membership of the union.
“I would not celebrate, but I think it’s likely that the economy is now approaching cruising speed,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan.
“We still have some countries where, net of the external factors, the underlying growth trend remains very weak -- too weak.”
While growth in France, the region’s second-largest economy, is projected to accelerate to 0.4 percent from 0.1 percent, and Italy is poised to register expansion for the first time since 2013, their full-year performances will lag that of the euro area as a whole.
The European Commission raised its outlook for the region on May 5, predicting gross domestic product will increase 1.5 percent this year.
Robust Recovery
Growth in Germany, Europe’s largest economy, probably slowed to 0.5 percent at the beginning of the year from 0.7 percent amid weak momentum in engineering and the car industry.
The Bundesbank still sees the nation on track for a “quite robust” recovery this year. German, French and Italian reports for the January-March period are due on Wednesday before Eurostat releases region-wide data at 11 a.m. in Luxembourg. Forecasts from the 42 economists in a Bloomberg survey range from growth of 0.3 percent to 0.6 percent.
From a year earlier, gross domestic product probably rose 1 percent. By contrast, Britain’s economy grew 0.3 percent in the first quarter from the prior three months, while the U.S.’s expanded 0.1 percent in unannualized terms.
“The economic situation and the short-term outlook for the euro area are currently brighter than they have been for several years,” ECB President Mario Draghi said on April 17. He added that the “sluggish pace at which structural reforms are being implemented” will likely weigh on growth.
Structural Reforms
Not so in Spain, where the government has liberalized the labor market and tackled the legacy of bad debt held by banks since being hit by the crisis. The economy expanded 0.9 percent in the first quarter, the fastest pace in seven years, and will grow at nearly twice the speed of the euro area this year.
“We had a lot of positive tailwinds at the beginning of the year, the weaker euro, the weaker oil prices, the signaling effect of quantitative easing,” said Anatoli Annenkov, senior economist at Societe Generale SA in London.
“There’s been a lot of things aligning for a good first quarter.” Business confidence rose to the highest level since mid-2011 in March, when the ECB started purchases under its 1.1 trillion-euro ($1.2 trillion) QE plan. Since then, the central bank has amassed 109 billion euros worth of public-sector debt.
Stimulus Fading
While the program has contributed to a turnaround in bank lending and helped rein in a slump in consumer prices, some observers aren’t yet convinced of the strength of the recovery.
Stimulus from weaker oil and a lower euro is now fading, with Brent crude rising almost 40 percent since mid-January and the single currency up 7 percent against the dollar since mid-March.
Greece’s crisis has also yet to be resolved, though euro-area finance ministers moved a step closer to a deal that could release funds to the cash-strapped nation at talks on Monday. Dutch Finance Minister Jeroen Dijsselbloem said the parties are “making faster progress” toward an agreement.
“At the moment, it looks quite good because of the fall in energy prices, and that will boost the economy for a while,” said Christoph Weil, senior economist at Commerzbank AG in Frankfurt.“But toward the end of the year the dynamic will diminish again. It’ll prove a straw fire.”
bloomberg.com
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