Eurozone to End Year With Robust Economic Growth

EghtesadOnline: Improving confidence proved Eurozone's resilience after political events since the summer. Data so far also suggests a slightly more optimistic outlook for coming months supported by export orders and the depreciation of the euro. However, political risks remain tilted to the downside.

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25 December 2016

The eurozone economy proved resilient to adverse shocks over the course of this year and will likely end the year with a relatively robust economic growth, Econotimes reported.

“Survey data available so far–such as the composite purchasing managers index and the European Commission’s economic sentiment indicator–are consistent with above-trend GDP growth of about 0.4% q/q in Q4, up from 0.3% in Q3, which would leave average GDP growth at 1.6% for this year.” analysts at BNP Paribas notes.

Real household income growth shall remain under pressure as higher energy prices push up headline inflation. A slowdown in exports to the UK, which accounts for about 14% of the eurozone’s goods exports might be a denting factor. Reduced support to growth is seen from both monetary policy (fading QE effects) and fiscal policy.

“We are looking at a slowdown from last year’s 1.9% growth with a further moderation to come over 2017, on average, to 1.2%, adds BNP Paribas.

Prices Accelerate

The eurozone economy probably accelerated slightly in the final three months of the year, as surveys of purchasing managers' index released Thursday also pointed to mounting inflationary pressures that will be welcome news for the European Central Bank.

IHS Markit said its composite purchasing managers index for the eurozone’s manufacturers and service providers, which is based on a survey of 5,000 companies, was unchanged at 53.9 in December. A reading above 50.0 signals an increase in activity, while a reading below signals a decline.

That left the average reading for the fourth quarter above the previous three periods, suggesting the economy grew at a quarter-to-quarter rate of 0.4%, a slight pickup from 0.3% in the three months through September.

Wealth Inequality Rises

The concentration of wealth among the eurozone's richest has increased since the bloc's debt crisis began, with poor families suffering the biggest drop in asset values, a survey released by the European Central Bank showed on Friday, Reuters reported.

The eurozone's top 5% of households owned 37.8% of net wealth in 2014, up from 37.2% in 2010 while the bottom 5% owned only debt, the ECB said, based on a survey of 84,000 households.

Suffering from waves of recession, the bloc's protracted debt problem has worsened inequalities as states on the periphery like Italy, Spain, Portugal and Greece struggled, while those in the core, like Germany, were quicker to recover.

The median wealth of a eurozone household dropped around 10% to €104,100 ($108,800) in the four years to 2014, mostly as property prices fell, especially for the poorest fifth of the population, the ECB said.

"The shift was particularly substantial in Greece and Cyprus, where the median fell by roughly 40%... but it is also large in Italy, Portugal, and Spain, where it declined by more than 15%," the ECB said.

Bucking the trend, median wealth in Germany, the bloc's economic powerhouse, increased by 10% over the same period. It also edged up in Austria, Finland and Luxembourg, according to Financial Tribune.

To reach the top 10%, households needed to hold net wealth of €496,000 or more, while the lowest 10% had €1,000 or less.

"The fall in net wealth was mainly driven by a reduction in the value of assets, in particular real estate," the ECB said. "The decline in net wealth was higher for leveraged households, especially homeowners with a mortgage, compared with outright homeowners and renters."

The property price fall, a consequence of the bloc's economic crunch, hurt the poorest the most—real estate wealth was down by a fifth for the poorest 40%, twice the rate of the drop affecting the richest 20%, the ECB said.

Families in Luxembourg, where the financial sector dominates the economy, were the richest, with a median net wealth of €437,500. In the former Soviet, Baltic state of Latvia, it was just €14,200.