Eurozone Grows Amid Concerns

EurozoneAmid remaining economic concerns, the euro area, referred to colloquially as eurozone, continued to grow economically in the first quarter of 2014. London-based global data firm Markit Group Lt. surveyed 5,000 manufacturing and services businesses, finding that economic activity continued to expand in March, though at a slightly slower pace than in February. Surveys Euro’s return to growth as a currency is gaining momentum, after starting to do so last spring. For the first time since 2011, employment increased, and did so in concert with an increase in wages. March 2014 is the second consecutive month to see an increase in employment within the euro zone. France saw the most notable growth, with its first growth since last fall; Germany’s economy slightly slumped.

However, the Markit report warns that the rebound may be too slow to catch up to the target inflation rate of just under 2.0% through 2016. Some economists say that the prospect of a further weakening in the inflation rate may yet prompt a response. British economist James Howat stated that economic growth is still too weak to erode the region’s capacity. The eurozone’s inflation rate was only 0.7% in February. Further decline in the inflation rate would push the currency area closer to deflation, a state where consumer prices fall instead of increase. While lowering prices may appeal to consumers, doing so can cause problems for businesses; lower prices can delay high cost purchasing decisions if people believe goods and services are likely to become less expensive in the future. This in turn can stall a country or region’s economic recovery. Standard & Poor expects a growth in the euro zone of roughly 1%.

Whether the eurozone can continue to grow and how quickly it does so, depends in part on global economics and politics. The former concern will be reflected in foreign markets, since much of the European bloc’s economy depends on exports. China has made international news in the business arena due to stalling production. Meanwhile the United States is also expected to announce a slowing of growth after reporting the highest month in four years this February. Additionally, international diplomacy plays a role in the region’s still shaky recovery with concern amid the current tensions between Russia and Western Europe. Relations between the two parties have been cool since Moscow initiated a takeover of Ukraine’s Crimea peninsula, to the consternation of the global community.

Despite well publicized hints of recovery, Europe still has employment concerns. The eurozone still reported 12% unemployment in January. The 28-nation European Union acknowledges more than 26 million people are currently out of work, via statistical agency Eurostat. The official jobless data for February is set to be released on April 1.

Economists such as Howat have made positive statements about recent growth within the eurozone; however analysts including British analyst himself have lamented that the growth has been smaller than hoped, suggesting a slower, less stable recovery. As concerns over the Chinese economy and political turmoil amid the Russo-Ukrainian crisis remain, the eurozone’s venture back to economic vitality is expected to be slow.

By Ian Erickson

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Sources:
New York Times
Reuters
Wall Street Journal

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