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The euro area economy appears to be gaining ground, with measures of inflation and economic growth picking up speed, there are signs that the recently troubled region’s currency could be slowly turning a corner.

Gross domestic product (GDP) expanded 0.5% in the final quarter of 2016, which translated into annual growth of 1.8%. That’s faster than what analysts had expected.

The Eurozone hit a milestone in February after inflation reached 2% for the first time since January 2013, driven by rising energy prices and highly accommodative central bank policy. In Germany, the consumer price index (CPI) reached 2.2%. In Spain, CPI registered 3%.[1]

Euro area inflation eased to an annualized 1.5% in March, but the underlying trend continues to point to recovery.

The currency region has also registered gains on the employment front, with the jobless rate falling to the lowest level since 2009. The unemployment rate dipped to 9.5% in February, down from 10.3% a year earlier.[2] The region had struggled with double-digit unemployment since the financial crisis.

A stronger economic recovery has also spurred stronger profit growth for European companies. The companies listed on the Stoxx Europe 600 Index recorded an 11% increase in profits in the fourth quarter compared to a year earlier. That was the highest in two years, and more than double the growth rate of U.S. companies listed on the S&P 500.[3]

The International Monetary Fund (IMF) has also upped its forecast for the 19-nation economy. The international lending institution recently said it expects the Eurozone to grow 1.7% this year, up slightly from a January estimate of 1.6%.

“The modest recovery is projected to be supported by a mildly expansionary fiscal stance, accommodative financial conditions, a weaker euro, and beneficial spillovers from a likely US fiscal stimulus,” the IMF said in the April edition of its World Economic Outlook.[4]
Steady progress in the currency region partly reflects years of stimulus from the European Central Bank (ECB), which has slashed interest rates into negative territory and expanded the size of its quantitative easing program. However, analysts warn that the region could still potentially face strong headwinds in the form of political uncertainty and uneven growth, with southern European states continuing to lag-behind their northern peers.

The Eurozone is also under threat from within, as waves of populism spread across its borders. On Sunday, far-right leader Marine Le Pen advanced to the second round of the French election, putting her one step closer to the presidency. Le Pen has vowed to abandon the euro and exit the European Union (EU) if elected president.

 

[1] Financial Times (March 2, 2017). “Eurozone inflation hits 2% for first time in four years.”

[2] Trading Economics. Euro Area Unemployment Rate.

[3] Blaise Robinson (March 3 2017). “Europe Earnings Outshine U.S. to Signal Long-Awaited Rebound.” Bloomberg.

[4] Luxemburger Wort (April 18, 2017). “IMF slightly ups eurozone growth forecast.”

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