Euro-Area Economy Keeps Cruising Speed as Outlook Improves

EghtesadOnline: The euro-area economy maintained its robust growth pace at the end of last year, setting the stage for another solid performance in 2018 that may sway European Central Bank policy makers into winding down unprecedented stimulus.

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14 February 2018

Gross domestic product increased 0.6 percent from the previous three months, Eurostat reported Wednesday, confirming a Jan. 30 estimate. Growth slowed in Germany and Italy, while the pace of expansion accelerated in the Netherlands and Portugal, according to separate reports.

According to Bloomberg, the European Commission has said the economic expansion in the 19-nation region is now more balanced than at any time since the financial crisis, and the International Monetary Fund has raised its global outlook for 2018. ECB policy makers say they’re increasingly confident that robust growth will slowly rekindle price pressures, paving the way for a gradual withdrawal of monetary accommodation.

Germany’s upswing -- despite a slowdown in quarterly output -- continues to be a key ingredient for growth in the euro area. Momentum in the country at the end of last year was driven by a strong increase in exports, according to a national report. Government consumption and equipment investment increased, while private spending remained largely unchanged and construction slipped.

The Dutch economy also benefited from buoyant global trade. GDP increased 0.8 percent in the fourth quarter, exceeding economist estimates. Italian growth slowed to 0.3 percent, leaving it lagging behind France and Germany and providing a note of caution ahead of general elections next month. GDP increased 0.7 percent in Portugal.

“Going into this year there are reasons to expect growth to broaden,” said Jennifer McKeown, chief European economist at Capital Economics Ltd. in London. “Germany will likely be among the strongest performers this year, but as you move through the year France and Italy will hopefully start to catch up.”

Global Trend

Elsewhere, the Japanese economy continues to look healthy after two years of uninterrupted growth, even though growth slowed to 0.1 percent in the fourth quarter amid weaker public demand. Singapore lost some of its momentum at the end of 2017, with the government projecting a slight moderation in growth this year as an export boom eases.

Economic momentum in the euro area surged to the fastest pace in almost 12 years last month, a business survey showed, pushing firms to pile on the most additional workers since the start of the millennium.

“Euro-zone industry is a good example of a sector with still a lot of upside left,” Bert Colijn, senior euro-area economist at ING Bank NV in Amsterdam, said after a report showed industrial output surged an annual 5.2 percent in December. “The acceleration of production growth is unlikely to be a one-off as the outlook for industry remains rosy.”

While ECB President Mario Draghi has welcomed the region’s strengthening momentum, he also cautioned against removing stimulus too quickly in light of still-muted inflation. Consumer-price growth slowed to the weakest since July at the start of the year.

“The GDP results for the final quarter of 2017 should strengthen confidence at the ECB that inflation will gradually move from 1.3 percent currently to the goal of just below 2 percent,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “We don’t expect an accelerated exit from asset purchases due to the continued robust upturn though.”