Eurozone economy sees more evidence of faster growth

Further evidence has emerged to show that the 19-country eurozone economy ended 2016 strongly and it is poised for a period of faster growth '“ at least until a run of elections that have the potential to cloud confidence.
Business and consumer confidence in the eurozone is near a six-year high. Picture: Claudia Gazzini/APBusiness and consumer confidence in the eurozone is near a six-year high. Picture: Claudia Gazzini/AP
Business and consumer confidence in the eurozone is near a six-year high. Picture: Claudia Gazzini/AP

In a wide-ranging survey across the single currency bloc, the European Union found business and consumer sentiment running at near six-year highs. Its economic sentiment indicator rose 1.2 points to 107.8, its highest level since March 2011.

The survey found confidence up across sectors, from retail to industry, and in most countries, from powerhouse Germany through to heavily indebted Greece. Italy, however, was flat and Spain suffered a retreat.

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Consumer confidence was particularly strong, suggesting that recent drops in unemployment across the eurozone and increased optimism over the outlook have helped alter individuals’ propensity to spend in the crucial run-up to Christmas.

That echoes other recent findings – most notably from the closely watched purchasing managers’ surveys – showing that the eurozone economy gained traction in the latter months of 2016. A number of economists now think the eurozone economy expanded at a quarterly tick of 0.5 per cent in the fourth quarter of 2016, up from 0.3 per cent in the previous three-month period.

One mild disappointment was news that retail sales across the eurozone eased 0.4 per cent in November, but that came after a 1.4 per cent jump in the previous month. Despite the monthly slowdown, the EU’s statistics agency, Eurostat, said retail sales were 2.3 per cent higher in the year to November, markedly ahead of the year’s average.

Overall, this week’s run of economic data will likely come as relief to many of the region’s governments facing tough re-election battles ahead as well as to policymakers at the European Central Bank.

Elections are likely to play a key role in business and consumer sentiment this year. Notable votes are due in France, Germany and the Netherlands, and in all three there are populist politicians looking to gain an advantage from the economic malaise that has gripped the eurozone for nearly a decade.

Many economists think that eurozone growth will likely falter in 2017 because of the uncertainties that will be generated by the elections as well as higher inflation caused by higher oil prices.

“With this week’s data also confirming that rapidly rising energy inflation is now biting into consumers’ disposable income growth, and given the heightened level of political uncertainty ahead of key elections this year, the pace of economic expansion seems set to slow,” said Stephen Brown, European economist at Capital Economics.