The 19-country eurozone’s economy is kicking into a higher gear thanks to falling oil prices and the lower euro, but the recovery is still far short of that experienced by the US, Yahoo reported.
A brace of economic reports Wednesday point to economic activity picking up momentum after a year of stagnation, particularly in the crucial area of consumer spending. And that’s likely to be welcomed by policymakers at the European Central Bank as they head off for their latest meeting Thursday in Nicosia, the capital of the Mediterranean island nation of Cyprus.
In one of the clearest signals of economic buoyancy, retail sales in the eurozone rose in January by a monthly rate of 1.1 percent. The figure, published by the Eurostat statistics agency, was the biggest increase since May 2013. January’s rise was way more than the 0.2 percent uptick predicted by many in the markets and took the annual rate up to 3.7 percent, the highest since August 2005.
Like most western economies, consumer spending is a bedrock for economic growth in the eurozone and the fact that it’s growing strongly and consistently – up for four straight months for the first time since records began in 2000 - is a positive signal.
“This reinforces our belief that eurozone growth will pick up markedly to 1.6 percent in 2015 as it benefits appreciably from very low oil prices, a much more competitive euro and substantial ECB stimulus,” said Howard Archer, chief European economist at IHS Global Insight.
Consumer Spending
For years, consumer spending in the eurozone has been held back by a number of factors, including high unemployment in many countries, muted wage growth, budgetary restraint by many governments trying to get their public finances into shape, and a general feeling of economic uncertainty.
Now, despite recent concerns over Greece’s future in the eurozone, consumers appear to be gaining confidence. Falling unemployment – though still relatively high at 11.2 percent – is helping to boost spending, as is the sharp decline in fuel prices, which has been the main reason why inflation rates have turned negative. Many economists have warned of the impact of falling prices on consumer spending. A sustained period of so-called deflation can be a huge brake on an economy – as evidenced in Japan over the past couple of decades – if consumers delay spending in anticipation of cheaper products down the line and investors reduce investment in the wake of falling profits.
A separate report on Wednesday found the eurozone economy grew in February at its fastest rate in seven months with the lower euro helping confidence. The euro has fallen sharply in recent months and is trading at around 11-year lows against the dollar.
