Eurozone GDP figures due for release Wednesday are expected to show the economy grew by 0.5% in the first quarter of the year.
Eurozone GDP figures due for release Wednesday are expected to show the economy grew by 0.5% in the first quarter of the year.

EU Recovery Gathering Pace

EU Recovery Gathering Pace

The eurozone economy has lagged behind the recoveries in the US and UK for most of this decade, but this is now changing.
Growth in the eurozone last year came in at 1.7%, more or less matching the performance of the US and UK at 1.6% and 1.8%, respectively. Leading indicators of activity suggest that the recovery in the eurozone has gained momentum this year, while growth in the US and Britain has slowed, INA reported.
For example, the eurozone composite PMI averaged 55.6 in the first quarter of the year, up from 53.9 in the final quarter of 2016. This was its best quarterly performance since 2011, with both manufacturing and services sectors making gains. Likewise, the EC eurozone economic sentiment index averaged 107.9 in quarter one, its highest level in six years also.
Thus, eurozone GDP figures due for release Wednesday are expected to show the economy grew by 0.5% in the first quarter of the year. We already have GDP data for a number of eurozone countries showing continued solid growth in the opening quarter of the year.
By contrast, growth slowed in both the US and UK economies, which recorded GDP rises of 0.2% and 0.3%, respectively, in quarter one.
Furthermore, timelier survey indicators for April point to a continuing very positive picture for the eurozone economy. The composite PMI increased further to 56.7, while the EC economic sentiment index jumped to 109.6, a near 10-year high.
National surveys—such as the German Ifo, French INSEE and Italian ISTAT indices—were also around multi-year highs in April, pointing to firming economic growth in the eurozone’s main economies.
The pick-up in activity is impacting on the labor market, with the unemployment rate dropping to 9.5% in February, its lowest level since 2009. Employment in the eurozone has grown at a healthy pace in the past couple of years, increasing by 1.1% in 2015 and 1.3% in 2016.
The employment component of the eurozone composite PMI increased in the first quarter of 2016 and rose further in April to 54.8, its highest level in nearly 10 years. Despite the strengthening in activity, the ECB seems quite content to continue with its exceptionally loose monetary policy because of weak inflationary pressures.
Last week, it kept its key discount rate at -0.4% and reaffirmed it will continue with its large asset purchase program, or quantitative easing, until the end of 2017, if not beyond.
The ECB is forecasting that inflation will average 1.7% in 2017, up from 0.2% in 2016, reflecting the recovery in oil prices. However, despite this marked rise, the ECB has been keen to emphasize that underlying inflation remains low and is expected to rise only gradually over the medium-term.

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