The euro area economy has indicated signs of a considerable acceleration following a 0.4 percent quarter-on-quarter growth in the fourth quarter of last year. Recently, all business surveys have continuously surprised on the upside, indicating towards GDP growth accelerating closer to 2.5 percent year-on-year, a rise from 1.7 percent year-on-year recorded at the end of 2016. This is stronger than the possible growth estimated at about 1.1 percent year-on-year, suggesting that the euro area output gap might be closing at a much rapid rate as compared to projected earlier, noted Scotiabank in a research report.
Throughout the euro area, Germany is expected to be an economic outperformer, owing to the firming global demand. The latest IFO surveys have come to their highest levels since 2011 when the German GDP growth was growing by over 4 percent year-on-year. But there are also signs that the euro area recovery is widening throughout its member states. The PMIs are rising in Italy and France in spite of the negative effect of increased political uncertainty, stated Scotiabank.
Moreover, increased supportive financial conditions continue to strengthen the euro area economic recovery, with interest rates staying at low levels along with continuing stimulus provided by the ECB. The subdued euro is also giving a boost, with the nominal effective exchange rate trending at its lowest level in nearly 15 years and helping local competitiveness. Hence, credit growth has bolstered, rising to 2.3 percent year-on-year in February, the most robust since 2009 and over double the growth pace witnessed a year ago. Overall, these developments bolster the view that the euro area economic recovery is becoming more sustainable, stated Scotiabank.
“The risk to the Eurozone growth outlook has now shifted to the upside, with both the EU Commission and the ECB revising their real GDP growth forecasts for this year and next year up closer to 2.0% y/y”, added Scotiabank.