Euro Zone Surprise Golden Growth

Euro Zone

Euro zone continues its slow economic recovery into 2014. Activity hovers at 2.7 percent, which is still beneath the pre-recession peak levels of 2008. While household spending remains low, euro zone growth, particularly in Germany and France, came as a golden surprise to many analysts.

Europe enjoyed three quarters of consecutive growth. Unemployment has stabilized. Economists said that production was up 0.3 percent in comparison with the previous quarter, which represented a slow, but positive step toward recovery. These calmer conditions show recovery is no longer confined to central Europe. It has extended to the periphery areas as well.

Germany remains the strongest member within the euro zone. The country’s economy grew by 1.3 percent in 2013. These figures were stronger than expected. Some analysts argued that the figures were boosted by exports and capital investment, highlighting concerns over mixed signals from domestic demand.

Last month, Latvia became the 18th member to join the currency zone. There are currently 28 member states in the European Union. 18 of these members make up the currency union. Latvia represents the newest member.
Crucially, the Italian economy grew for the first time in nearly four years, though the growth fell below the average for the Euro zone. Historically, Italy, Spain and Portugal have lagged behind Germany and France. Germany and France represent the two largest members. Pointedly, Italy and Portugal’s output increased in November, which was the biggest surprise in euro zone growth, representing a golden acheivement for southern Europe.

Although output for December fell largely across central Europe, overall performance for the three month period was boosted by industrial production. Analysts say, these new figures show that domestic product growth is likely to have increased from 0.1 percent to 0.2 percent from last quarter.

Chief economist, Marco Valli insisted that the euro zone’s “disappointing” industrial output would not affect growth forecasts. Valli forecast 0.2 percent quarterly growth in the fourth quarter.

Some analysts blamed the weather, citing the weather conditions as one contributing factor to lowered energy production in the last quarter. Energy production is down by 2.1 percent.

There are calls for the European Central Bank to further relax monetary policy. Inflation was at 0.8 percent at the beginning of the year.

In December 2012, industrial output rose to 0.5 percent, compared to December’s weak performance. Only Slovenia, Greece and Portugal saw industrial production rise in December. Slovenia saw a 2.7 percent growth, followed by a 2.6 increase in Greece. Portugal also saw a 0.7 increase from November’s performance. Portugal has stepped away from international bailout and is expected to exit later this year thanks to a rise in output.
Europe’s strongest areas’ output fell in December, including Germany and France. Production fell 0.9 percent in Italy, followed closely by Germany. France fell at 0.3 percent.

Despite the poor performance in December, economists said the euro zone grew by 0.3 percent on average for the last quarter of 2013. This represented a 0.1 percent increase in growth. Fears remain about long-term growth. Some said the modest growth was offset by other issues like low household spending. Economists are calling for policy action from the European Central Bank. The surprise news of growth in the euro zone was well received in the US, following poor retail sales and less than golden performance. World stocks gained with the news of recovery, the euro rose to its highest level for the last three weeks.

By Simone Innamorati

Sources:

Reuters

BBC

New York Times

Reuters

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