Stronger than expected growth in eurozone | Business Sun

Stronger than expected growth in eurozone

Business Sun Friday 14th February, 2014

• GDP contracted by 0.4percent in the eurozone, but increased by 0.1percent in the EU as a whole

• GDP contracted by 0.4percent in the eurozone, but increased by 0.1percent in the EU as a whole

• The economy of the wider 28-nation EU grew by 0.4 percent compared with the previous quarter

BRUSSELS - There is rising expectations that recovery is taking hold in the eurozone,

with 0.3percent GDP growth in the fourth quarter of 2013 as against only 0.1 percent in the previous quarter.

Data from the EU's statistics office, Eurostat, showed that during 2013, GDP contracted by 0.4percent in the eurozone, but increased by 0.1percent in the EU as a whole.

In the third quarter, growth was only 0.1 percent across the bloc, which counted 17 members before Latvia joined this year.

Although growth in the 18-nation currency union is still weak, at a 1.1 percent annualized rate, it was the euro zone's third straight quarter in positive territory, indicating that the bloc is well beyond the year-and-a-half recession that ended in mid-2013.

The economy of the wider 28-nation EU, which includes members like UK that don't use the euro, grew by 0.4 percent compared with the previous quarter. For the whole of 2013, the figures showed the recovery was still at an early stage. The eurozone's GDP fell 0.4 percent, while the EU's inched up 0.1 percent.

The fourth quarter growth beat analysts' expectations for a rate of 0.2 percent and eases some of the pressure on the European Central Bank to loosen its monetary policy further.

The EU's statistics office will publish a detailed breakdown on March 5, but analysts said the fourth-quarter growth was mainly driven by exports and investment and higher than expected activity in the bloc's biggest economies, namely Germany, France and Italy.

"The eurozone's recovery has moved up a gear," said Chris Williamson, chief economist of Markit.

"Not only has the pace of growth picked up to the fastest since the second quarter of 2011, but the recovery is also becoming more broad-based, encompassing core and so-called 'periphery' countries alike."

Williamson said the figures added to recent data showing "the eurozone's recovery has moved up a gear." Italy's quarterly growth rate of 0.1 percent marked the country's first positive growth result since 2011. Germany's economy grew by 0.4 percent in the fourth quarter, while France's saw an uptick of 0.3 percent.

The eurozone's recovery is important to the world economy with a market of 500 million consumers and an economy worth about 11.7 trillion euros, or $16 trillion, it is important for both the US and emerging markets. Uncertainty over the bloc's financial future in recent years has pulled down global growth.

"While still far from dynamic, it is a step back in the right direction," said analyst Howard Archer of IHS Global Insight.

While the eurozone has been emerging out of recession for a year, the high unemployment of 12 percent in the region remains a major cause of concern.

A strong euro is still hurting its exporters and governments are more focused on cutting debt than investing.

The euro zone figures might also have brought at least a small measure of relief to Mario Draghi, the president of the European Central Bank who had stated last week that he wanted to see additional data, including the euro zone gross domestic product report, before making any further adjustments to monetary policy.

His critics have been urging the central bank to take steps to stimulate the economy, but Draghi's options are limited, particularly with the bank's benchmark interest rate down to a record of 0.25 percent.

Spain has already reported fourth quarter growth of 0.3percent, its second successive quarter of expansion. The government now expects growth this year of close to 1percent, compared with an official forecast of 0.7percent.

The Dutch economy grew by a solid 0.7percent on the quarter, well above the market consensus. Austrian GDP rose 0.3percent.

Evelyn Herrmann, economist at BNP Paribas, said: "Effectively, it was the first time since the first quarter of 2011 that all big five euro zone economies posted positive quarterly growth rates."