Euro­zone prospects

The Pak Banker - - FRONT PAGE -

Ac­cord­ing to the lat­est re­ports, eco­nomic sen­ti­ment in the Euro­zone fell slightly in May, con­tin­u­ing a down­ward trend seen over the past four months. Ac­cord­ing to the Euro­pean Com­mis­sion (EC), the eco­nomic sen­ti­ment in­dex (ESI) was fell from April's 112.7 points to 112.5 points in May. May's re­sult marked a nine-month low. How­ever, over­all, sen­ti­ment in the Euro­zone remains at a high read­ing con­sid­er­ing the past two decades thanks to a ro­bust eco­nomic re­cov­ery. De­clines in sen­ti­ment in the man­u­fac­tur­ing and services drove May's dip in sen­ti­ment. How­ever, they were par­tially bal­anced out by ris­ing con­fi­dence in the con­struc­tion and re­tail trade sec­tors. Mean­while, con­sumer con­fi­dence was vir­tu­ally un­changed. Em­ploy­ment plans were mixed across sec­tors fall­ing no­tably in the in­dus­trial and con­struc­tion sec­tors, but ris­ing to an over 18 year high in the con­struc­tion sec­tor. At a coun­try level, eco­nomic sen­ti­ment fell in nine economies in May, in­clud­ing in France, Italy and Spain. How­ever, sen­ti­ment rose in sev­eral other economies, in­clud­ing Ger­many.

Some time back, the Euro­pean Com­mis­sion raised its growth pro­jec­tions for the euro zone. The EC is more con­fi­dent than ever be­fore that the solid eco­nomic re­cov­ery in Eu­rope will en­dure through 2019. The com­mis­sion, the EU's ex­ec­u­tive arm, said the 19-coun­try sin­gle cur­rency bloc's econ­omy would ex­pand by 2.3 per­cent in 2018, up from a pre­vi­ous fore­cast of 2.1 per­cent made in Novem­ber.

Growth would then con­tinue at a solid pace next year, with the euro zone econ­omy ex­pand­ing by 2.0 per­cent in 2019, in­stead of the ear­lier- pre­dicted 1.9 per­cent. In the words of EU Eco­nomic Af­fairs Com­mis­sioner, "The euro area is en­joy­ing growth rates not seen since be­fore the fi­nan­cial cri­sis. Un­em­ploy­ment and deficits con­tinue to fall and in­vest­ment is at last ris­ing in a mean­ing­ful way."

There are signs that the Euro­pean econ­omy, long in trouble, is now look­ing up. Of­fi­cial data last week showed that growth in the euro zone shot up in 2017 to 2.5 per­cent, with un­em­ploy­ment cur­rently at a nine- year low. The news was es­pe­cially pos­i­tive for France, the euro zone's sec­ond big­gest econ­omy, which saw its fore­cast re­vised sharply higher to 2.0 per­cent for this year. This was up from the 1.7 per­cent pre­dic­tion just three months ago, and will be the first time the coun­try will reach the psy­cho­log­i­cally im­por­tant thresh­old since 2011. It will also likely mean enough growth to keep France clear of breach­ing the EU's deficit limit, which is set in terms of the size of the econ­omy.

Brus­sels said that the EU-27 as a whole, mi­nus Britain, would ex­pand by 2.5 per­cent this year and 2.1 per­cent in 2019. Britain mean­while would ex­pand far be­low that level, at 1.4 per­cent in 2018 and 1.1 per­cent in 2019. How­ever, the com­mis­sion, which is also lead­ing the EU-Britain di­vorce talks, markedly in­creased the UK's growth es­ti­mate for 2017 to 1.8 per­cent. In Novem­ber, the EU said Britain would only reach 1.5 per­cent growth. Pow­er­house Ger­many mean­while, will re­main above the two per­cent thresh­old, ex­pand­ing by 2.3 per­cent in 2018 and 2.1 per­cent next year.

Op­ti­mism in the euro zone grew in all sur­veyed eco­nomic sec­tors, jump­ing to 16.2 points from 15.4 in Septem­ber in services, the largest sec­tor in the euro zone.In­dus­try's con­fi­dence grew to 7.9 from 6.7 and re­tail­ers saw a rise to 5.5 from 3.0. Con­sumers shared the pos­i­tive mood, with op­ti­mism ris­ing to -1.0 from -1.2, reach­ing the high­est level in 16 years, data re­cently re­leased showed, con­firm­ing a pre­lim­i­nary es­ti­mate.The pos­i­tive read­ing for the euro zone was only partly clouded by a drop in in­fla­tion ex­pec­ta­tions among man­u­fac­tur­ers to 8.6 from 10.5 three months ago.

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