Growth, in­fla­tion stir in euro zone

Kuwait Times - - BUSINESS -


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.

Wak­ing Up?

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.

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