Eurozone economic growth accelerating
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.