Eurozone recovery gathers pace

It looks like the eurozone recovery is picking up. The latest data shows that economic growth has exceeded expectations.

Eurozone GDP rose by 0.3% in the fourth quarter of last year, beating the consensus forecast of 0.2%.

The area’s biggest and second-biggest economies, Germany and France, drove the increase. Germany expanded by 0.4%, while France’s GDP rose by 0.3%, prompting RBS analyst Richard Barwell to say that “reports of the terminal decline of the French economy have been grossly exaggerated”.

In both economies, investment had an important role in the expansion, suggesting that the recovery has legs. In France there was an increase of 0.9% in corporate investment, while in Germany the Statistics Office said “capital investment developed positively”.

“The story of recovery and repair in the periphery continues to broaden out”, Barwell said. “Concerns over perma-recession in the periphery are fading fast from the memory.”

Shares up, and the euro hits a three-week high

European shares were higher Friday after the data was published, and the euro hit a three-week high to the dollar.

Some big European companies have both fed and felt the recovery. France’s Renault saw its operating profit jump by 59% to €1.24bn (£1.02bn), mainly due to delivery growth for its low-cost Dacia models.

And vehicle manufacturer Daimler – maker of Mercedes cars – saw its fourth-quarter operating profit surging to €2.53bn from €1.74bn in the same period of 2012.

But in a sign that it is too early to say for sure that the timid recovery will turn into a boom, some other European companies’ earnings missed expectations.

For example, Dutch telecom firm KPN reported a 63% fall in profit in the period, due to the weakness of its domestic market and an impairment charge.

Other economic indicators, too, show that the eurozone recovery is still fragile. Retail sales fell 1.6% in December from the previous month, while inflation was less than half the European Central Bank’s 2% target in January.

All this is likely to increase calls on the ECB president, Mario Draghi, to loosen monetary policy further in an attempt to avoid deflation.

Jonathan Loynes, chief European economist at Capital Economics, believes that the eurozone’s economic growth “is likely to remain a long way short of the rates needed to tackle the problems of sky-high unemployment and crippling debt levels” in many of its countries.

“Accordingly, we don’t think the fourth quarter’s modest expansion precludes the urgent need for more policy action from the ECB,” he says.

If you agree that further money-printing in Europe looks inevitable, check out this article by Matthew Partridge where he suggests one way you could profit.

  • dialucrii

    So the figures show the Eurozome recovery is improving, that’s great, fantastic news. Soooo, why is it again that, if things are already recovering under the status quo, there needs to be a further loosening if monetary policy??

    • Critic Al Rick

      Because the main criterion used by academic economists with which to judge the success of an economy is fundamentally flawed; increasing GDP, arguably helpful insofar as decreasing Budget Deficits are concerned but, without the discernment of discipline of growth, useless insofar as measuring the real success of an economy.

      An economy is not successful unless it is consistently achieving healthy Balance of Payments Surpluses. So, taken as a whole, the economy of the Eurozone, like the UK, is failing miserably and its population, taken as a whole, is living way beyond its means. So, as wealth is not being imported into the EZ, monetary policy is being used to pillage the wealth of the prudent in order to subsidise the profligate.

      Effectively, we’re being reduced to the Lowest Common Denominator; whilst those of the profligate who can Avoid taxation get richer and richer.