Euro area finishes 2017 with quarter of robust growth

Confidence among businesses and households suggests there is no slowdown in sight

Mario Draghi, president of the European Central Bank argued last week that it’s still too early to unwind stimulus, saying “we’re not there yet”. Photograph: Alex Kraus/Bloomberg

Mario Draghi, president of the European Central Bank argued last week that it’s still too early to unwind stimulus, saying “we’re not there yet”. Photograph: Alex Kraus/Bloomberg

 

The euro-area economy finished off last year with another quarter of robust growth, and confidence among businesses and households suggests there’s no slowdown in sight.

Gross domestic product rose 0.6 per cent in the three months through December, in line with forecasts and marking a 19th straight expansion. The French and Spanish economies, two of the region’s largest, both recorded similarly solid rates of growth.

The strong quarter put the euro region’s 2017 expansion at 2.5 per cent, better than anticipated by the European Central Bank and the fastest since before the financial crisis in 2008. In a sign the vibrant pace is set to carry on, a separate release showed regional economic confidence remained close to a 17-year high in January.

“We remain very, very optimistic for this year on growth,” said Anatoli Annenkov, an economist at Societe Generale in London. “Of course this was the fourth quarter but the carry over from last year continues into this year.”

The euro was little changed after the report and traded at $1.2421 at 11.51am Frankfurt time, up 0.3 per cent.

Bright Prospects

After years of suffering from the consequences of a sovereign-debt crisis, unprecedented stimulus by the ECB has turned the 19-nation euro area into a pillar of the global economy. The pickup comes in tandem with solid momentum in other parts of the world - a development that prompted IMF Director Christine Lagarde to suggest delegates at the World Economic Forum in Switzerland take a moment to celebrate the “sweet spot”.

The French economy expanded 0.6 per cent in the quarter, delivering its best full-year since 2011 as the election of President Emmanuel Macron helped bolster confidence and investment. Spain shrugged off the political crisis in Catalonia late last year with growth of 0.7 per cent.

Despite the economic upswing, inflation remains muted. ECB president Mario Draghi argued last week that it’s still too early to unwind stimulus, saying “we’re not there yet”. It’s committed to buying assets until at least September.

The confidence report indicated the economy may be starting to generate price pressures. Manufacturers increasingly face bottlenecks, with production capacity approaching an all-time low, reflecting an increase in utilisation. Order books are growing and a gauge of output expectations signals strong momentum ahead. - Bloomberg