Growth, inflation stir in euro zone
With a more than trillion euro fuel injection and no interest rates worthy of the name, the euro zone economy is stirring, more data confirmed yesterday, leaving policymakers hunting for signs the nascent recovery is sustainable. Two ECB policymakers, in separate speeches, showed no indication they believed their job was close to done, although the bank continues to demand reforms from euro zone capitals to fix underlying problems.
France eked out very meager growth, but it was nonetheless an improvement. Spain showed its economy was barrelling ahead, but still with a huge lagging unemployment rate. Economic confidence across the euro zone came in at its second highest level in more than five years. There were even signs of inflation creeping up in Spain and Germany - something dearly desired by the European Central Bank.
Furthermore, yesterday’s data followed preliminary reports from purchasing managers that were much more bullish than predicted and suggested relatively solid growth in France, Germany and the euro zone as a whole. “October’s rise in ... economic sentiment supports the message from the (purchasing managers) that euro zone growth accelerated towards the end of the year, albeit with continued divergence across countries,” Jennifer McKeown, chief European economist at Capital Economics, wrote in a client note.
The improvement - albeit essentially baby steps - raises some questions about how much of the ECB’s job is done, that is to say whether stimulus provided by ultra-easy interest rates and its 80-billion-euro-a-month bond buying program should continue. The ECB meets in December and will have to decide then whether it extends its bondbuying beyond an initial target date in March. To do otherwise would essentially subject markets and banks to a cold turkey cut-off.
ECB Executive Board member Benoit Coeure was clear yesterday that he and fellow policymakers wanted to see much more evidence before they pulled back. “Monetary accommodation will be maintained until we see a sustained adjustment (in inflation),” he said. And referring to growth, “The whole discussion will be how sustained is that.” Irish central bank chief Philip Lane concurred. “Until inflation is at a sustainable path to the current target, the current policy of accommodation will continue,” lane, also an ECB Governing Council member, said at a Reuters Newsmaker event.
Specifically, French third quarter growth came in at 0.2 percent, following a small contraction in the previous three months. It was arguably the worst data of the day, added to a downward revision in first quarter numbers, but Finance Minister Michel Sapin said there was nothing in it to suggest next year’s 1.5 percent projection would be missed.