Euro Econ­omy Is Head­ing To­wards a Golden Pe­riod


LON­DON (Bloomberg)- Europe is no longer the sick man of the world econ­omy.

The 19-na­tion bloc is al­ready en­joy­ing the strong­est growth in a decade and now econ­o­mists at Credit Suisse Group AG and Ox­ford Eco­nom­ics are declar­ing that it’s head­ing to­ward a golden pe­riod of low-in­fla­tion­ary ex­pan­sion.

The turn­around is strik­ing for a re­gion that plunged from the global fi­nan­cial cri­sis into its own sov­er­eign debt tur­moil, record un­em­ploy­ment and near-de­fla­tion that threat­ened the very sur­vival of the cur­rency union. While still to make up most of the ground lost in the dark years, and with pro­duc­tiv­ity still weak, the up­turn at least holds out the hope that some scars will start to heal.

“This is euro-area growth at its best,” said Nathan Sheets, a for­mer in­ter­na­tional economist at the Fed­eral Re­serve and U.S. Trea­sury. “Our friends on the con­ti­nent should en­joy it, it’s been a long famine.”

The im­prove­ment has plenty of room to run, says An­gel Talav­era, an economist at Ox­ford Eco­nom­ics in Lon­don. The Euro­pean Com­mis­sion last week raised its 2017 growth fore­cast to 2.2 per­cent from a 1.7 per­cent es­ti­mate in May.

Econ­o­mists sur­veyed by Bloomberg have raised their growth fore­casts eight times this year. Data due Tues­day is pre­dicted to show the re­gion gained more mo­men­tum in the third quar­ter by ex­pand­ing 0.6 per­cent, faster than the long-term trend, ac­cord­ing to Bloomberg Eco­nom­ics.

“More than four years into the cur­rent ex­pan­sion, most in­di­ca­tors sig­nal the euro-zone econ­omy is still some­where around mid-cy­cle,” Talav­era said. “Ab­sent an un­ex­pected shock, we should see sev­eral more years of eco­nomic growth.”

Euro­pean Cen­tral Bank pol­icy maker Benoit Coeure last week went as far as to say that in terms of bal­ance and ro­bust­ness, the econ­omy is in the best shape since the euro’s birth in 1999 al­though he called on gov­ern­ments to im­ple­ment more re­forms to sup­port it.

The vir­tu­ous cy­cle is be­ing mainly un­der­writ­ten by the ECB, which fended off the debt cri­sis and locked in ul­tra-loose mon­e­tary pol­icy, and ex­e­cuted by the con­ti­nent’s com­pa­nies and house­holds. Cor­po­rate prof­its are beat­ing es­ti­mates and con­sumer con­fi­dence is at the high­est since 2001.

The bright prospects for the euro re­gion paint a stark con­trast to the out­look for the U.K., where the un­cer­tainty sur­round­ing the im­mi­nent di­vorce from the Euro­pean Union is crimp­ing in­vest­ment and weak­en­ing the pound. The spread be­tween 10-year and two-year gov­ern­ment bonds has shrunk to about 80 ba­sis points this year in Bri­tain, while it has swelled to more than 110 ba­sis points in Ger­many, in­di­cat­ing a greater level of con­fi­dence in the big­gest Euro­pean econ­omy.

Still, the re­cent wounds run deep in the euro area. Pro­duc­tiv­ity growth is nowhere near lev­els recorded at the start of the mil­len­nium, a quar­ter of young peo­ple can’t find a job and un­em­ploy­ment in the re­gion’s pe­riph­ery still ex­ceeds 10 per­cent. And even at its cur­rent pace, growth will prob­a­bly still lag be­hind the U.S. In­fla­tion of 1.4 per­cent in Septem­ber re­mains be­low the ECB’s tar­get of just be­low 2 per­cent.

Sup­port for the sin­gle cur­rency -- al­though on the rise -- has yet to reach its 2007 high and eu­roskep­tic po­lit­i­cal par­ties have gained ground. The anti-euro AfD party be­came the third largest in the Ger­man lower house af­ter elec­tions in Septem­ber. The pop­ulist Five Star Move­ment in Italy is strength­en­ing be­fore next year’s gen­eral elec­tion.

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