Eu­ro­zone eco­nomic growth ac­cel­er­at­ing

Kuwait Times - - BUSINESS - By Hay­der Taw­fik

On a quar­terly ba­sis the eu­ro­zone econ­omy is grow­ing al­beit on a small scale. This is quite en­cour­ag­ing at a time of con­cern about UK leav­ing the Euro­pean union, Don­ald Trump’s dis­cour­ag­ing talks about un­fair trades by the US part­ners and threat of sanc­tions on Rus­sia, China and Venezuela. On top of these the Euro has risen sharply against the US dol­lar and other ma­jor cur­ren­cies.

The quar­terly eco­nomic growth has ex­panded by a small amount of only 0.6 per­cent but this is higher than the pre­vi­ous quar­terly growth of 0.5 per­cent. The eco­nomic growth is spread­ing through­out the 19 na­tions that rep­re­sent the block. This is a sign of the block’s up­swing that is be­com­ing in­creas­ingly ro­bust and self-sus­tain­ing. All the eco­nomic num­bers, busi­ness sta­tis­tics, unem­ploy­ment and man­u­fac­tur­ing out­put are sig­nal­ing that the block’s econ­omy is gain­ing stream and grow­ing. This is en­cour­ag­ing for the Euro­pean Cen­tral bank that has been sup­port­ing eco­nomic growth with its ac­com­moda­tive monetary pol­icy and its re­fusal to re­verse its quan­ti­ta­tive pol­icy.

The Euro­pean Cen­tral banks is fore­cast­ing and ex­pect­ing solid and broad based eco­nomic re­cov­ery in the months ahead. Based on the lat­est eco­nomic num­bers, an ac­cel­er­a­tion in eco­nomic growth is some­thing likely to hap­pen. As long as in­fla­tion is un­der­pinned by low wages and lower en­ergy prices, the Euro­pean Cen­tral bank is quite happy to con­tinue with its easy monetary pol­icy.

For the first time in a while, the French econ­omy en­joyed its strong­est con­tin­u­ous ex­pan­sion in the sec­ond quar­ter, driven by ex­ports and in­vest­ment, while Spain ex­pe­ri­enced the fastest growth since 2015. Some other economies also gath­ered mo­men­tum. Although unem­ploy­ment in Ger­many con­tin­ued to de­cline the econ­omy has sur­pris­ingly slowed down as its ex­port led econ­omy has been im­pacted by the strength of the euro mostly against the US$.

As for the eu­ro­zone cor­po­rate re­sults that re­flect the weak­ness or the strength of the econ­omy, it has been sur­pris­ingly strong and quite en­cour­ag­ing. The strength of the cor­po­rate re­sult has spread to most sec­tors. Led by lux­ury good items , food, staffing re­cruit­ment and chem­i­cals, all have re­ported good re­sults dur­ing the sec­ond quar­ter. The only sec­tor that has been dis­cour­ag­ing is the auto in­dus­try. That is some­thing might worry the of­fi­cial in Ger­many. The Ger­man car in­dus­try em­ploys about 20 per­cent of the en­tire Ger­man work­force. The Euro­pean Cen­tral bank pres­i­dent Mr. Mario Draghi has ex­pressed con­fi­dence that the solid, broad-based re­cov­ery will ex­tend into the sec­ond half, with a heal­ing la­bor mar­ket and a clos­ing out­put gap fueling a sus­tained in­fla­tion pickup.

Pos­i­tive sen­ti­ment among in­dus­tries and in­vestors hit a decade-high in July, with most in­dus­tries say­ing they’re work­ing at a higher ca­pac­ity and sell­ing-price ex­pec­ta­tions in­creas­ing in all sec­tors. In­fla­tion has been the stick­ing point in this eco­nomic re­cov­ery. Any price pres­sure or in­put prices have not been passed to con­sumers yet. This for the time be­ing is good news for con­sumers. The in­fla­tion rate stayed at 1.3 per­cent in July, be­low the ECB’s goal of be­low, but close to, 2 per­cent.

The hint of eco­nomic con­ver­gence among all in­dus­tries should be en­cour­ag­ing to eq­uity in­vestors. The higher cor­po­rate earn­ings should make for­ward eq­uity val­u­a­tion quite at­trac­tive rel­a­tive to some other re­gion in par­tic­u­lar the US stock mar­ket. Added to this the muted re­ac­tion by the Euro­pean Cen­tral bank to any changes to its monetary pol­icy makes Euro­pean eq­ui­tes quite ap­peal­ing to in­ter­na­tional in­vestors. @Rasameel.

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