Eurozone Growth Recovers to Pre-Crisis Level

European Central Bank President Mario Draghi said 2016 marked the first year when gross domestic product in the eurozone recovered to above its pre-crisis level since 2008.

 The temporary rebound within 2010 and 2011 was essentially a jobless recovery whereas current recovery had reduced the unemployment rate to 10% at the current stage in the eurozone region, with labor participation rate expanding, Xinhua quoted Draghi as saying.

Domestic demand has replaced foreign demand as the main driver of growth in the single currency area consisting of 19 European Union countries.

“Over the past two years, domestic demand has on average added more than a percentage point to GDP growth, supported by very accommodative financing conditions,” the head of ECB added.

He said economic recovery requires support from a strong banking sector, which has become more robust in terms of capital, leverage, funding and risk-taking under the global regulatory agenda steered by the G20.

“So now is the time to finalize the regulatory agenda and enter a period of stability. The focus should be on implementation, not on new design,” Draghi said.

Regarding potential risks weighing on recovery in the eurozone region, the ECB chief warned of the remaining prevalent geopolitical risks, the profitability of eurozone banks, the weak inflation dynamics as well as the dependence of the economic recovery on easy monetary policy.

The eurozone’s economic recovery faces “material” external risks, the ECB’s chief economist said on Friday, reiterating the ECB’s pledge to keep financing conditions easy.

“Although the eurozone recovery is showing signs of resilience, material downside risks remain, mainly stemming from the external environment and significant uncertainties following the outcome of the UK referendum (to leave the EU),” Peter Praet told an audience in New York.

“Therefore, we will ensure that monetary policy continues to play its role in facilitating the cyclical recovery.”

The eurozone economy grew steadily in the three months following Britain’s surprise vote last June to leave the EU. GDP estimates published last week by Eurostat showed that eurozone economic growth stabilized in the third quarter as it expanded by 0.3% sequentially, unchanged from the rate of growth in the second quarter. On a yearly basis, eurozone GDP growth remained steady at 1.6%.

Higher investment in construction contributed to overall growth, suggesting that the ECB’s record-low interest rates are assisting the economic recovery. In the EU as a whole, GDP climbed 0.4% from the previous quarter and by 1.8% from the same period last year.