Late winter blast sees eurozone growth comes off the boil


May 3, 2018-

After posting its highest growth in a decade during 2017, the 19-country eurozone has come off the boil at the start of the new year, largely because of temporary factors such as the “Beast from the East” cold weather phenomenon that gripped much of Europe in late winter.

In its first estimate, Eurostat, the European Union’s statistics agency, said Wednesday that growth across the single currency bloc slowed in the first three months of the year to a quarterly rate of 0.4 percent from a hefty 0.7 percent tick the previous quarter. That is the lowest growth figure since the third quarter of 2016, when it was also 0.4 percent.

Eurostat provided no explanations for the slowdown, but it was in line with economists’ expectations following a run of soft activity data attributed partly to temporary factors such as the bad weather gripping Europe in March, the acute volatility in stock markets, strikes and even a particularly nasty outbreak of flu in Germany.

However, there are some longer-term concerns such as the euro’s relative strength that may keep a lid on growth in the months to come -- a higher euro can make the region’s exports more expensive in international markets. Another potential headache could come in the shape of a trade war with the US if President Donald Trump goes ahead with his plan to impose a series of tariffs.

“Mounting uncertainty could translate to confidence falling further and much-needed investment being held back,” said Moritz Degler, an economist at Oxford Economics. “As such, even if a full-blown trade war does not materialize, the mere threat of it has the potential to further dent sentiment and the eurozone’s growth path this year.”

As a result of the quarterly slowdown, growth on an annual basis eased, too, though it was a still-healthy 2.5 percent against 2.8 percent in the previous quarter. That also compares favorably with the United States where the annual rate of growth stood at 2.3 percent during the same period.

Separately, Eurostat said unemployment across the region held steady at a near 10-year low of 8.5 percent in March. Overall there were 13.82 million people out of work in the eurozone, down by 83,000 on the month before. The decline in unemployment has accelerated over the past year as the region’s recovery has gained momentum across sectors and across countries -- In 2017, the eurozone was one of the standouts of the global economy, growing by 2.5 percent, its highest level since 2007.

The region has benefited from waning fears over debt-ridden Greece and the defeat of a run of populist -- and anti-euro -- politicians in elections in France and the Netherlands.

Though the European Central Bank has been encouraged by the economy’s momentum, it’s still pursuing crisis-era policies in order to get the annual rate of inflation back to its goal of just below 2 percent.

Financial markets think the bank will start reining in those policies when inflation is showing clear signs of settling around that level. Figures Thursday are set to show inflation rising modestly to 1.4 percent from 1.3 percent in March.

Anything substantially higher could prompt some to mull the possibility the ECB will bring forward the end of its bond-buying programme and start reversing its interest rate cuts, which have seen its main rate slashed to zero.

Published: 03-05-2018 08:03

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