With surveys showing Eurozone firms growing at their fastest rate in nearly six years, is this a euro boom?

European Central Bank To Announce Bond-Buying Program
European companies are growing strongly (Source: Getty)

Florian Hense, European economist at Berenberg Bank, says Yes.

The Eurozone is enjoying a broad-based upswing that can last. Some two years behind the more advanced recoveries of the UK and US, the Eurozone is on track to enjoy growth above its trend rate for a while as it plays catch up.

With a little help from the ECB, and with austerity over, real GDP growth can accelerate to 1.7 per cent in 2017 and 2018, above its trend of 1.5 per cent. The recovery is in its fourth year now and caution is fading. Growth is becoming more entrenched. Only a major shock can derail it. Stable gains in demand and employment will encourage businesses and households to invest and spend more freely again.

Although political risks are serious, they probably won’t materialise. The risk of early Italian elections has receded while a likely win for reformer Macron could raise France’s potential growth. If Trumponomics raises US growth, that will boost Eurozone exports. Et voilà, you have a euro-boom, a boom by Eurozone standards.

Stephen Brown, European economist at Capital Economics, says No.

After March’s rise, the PMI survey points to an acceleration in the quarterly pace of Eurozone GDP growth, from the fourth quarter’s 0.4 per cent to 0.6 per cent in the first quarter of 2017. That would be the biggest quarterly expansion in two years.

But this is hardly spectacular by international standards. And with higher inflation weighing on consumers’ purchasing power, we suspect that any pick-up in growth will not be sustained. Even if it were, it would be too soon to claim that the economy is booming.

Granted, Eurozone GDP is 3 per cent above its pre-crisis peak. But in the UK GDP is 9 per cent higher, and in the US 13 per cent higher. And while unemployment is low in Germany, it remains very high in France, Italy and Spain. This is despite exceptionally loose monetary policy from the ECB, which has little scope to do more.

Finally, a clear sign of depressed conditions is provided by the rise of eurosceptic parties, which are polling strongly across the continent ahead of national elections.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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