Why rosier European growth doesn’t mean it’s plain sailing
Confidence that recovery in the Eurozone is taking a firmer hold is growing this morning, after a series of better-than-expected numbers from Europe, but today's results don't mean it's suddenly going to be a walk in the park.
According to official statistics agency Eurostat, the Eurozone economy grew by 0.3 per cent in the fourth quarter of last year, beating estimates and up from the third quarter’s 0.1 per cent growth.
Year-on-year, the euro area saw growth of 0.5 per cent.
(Eurostat)
The data reinforces figures that’ve been coming in from individual counties in the bloc today: Italy returned to growth in the final three months of 2013 – the first time since mid-2011 – and Germany, the Netherlands and France all posted growth that was better than forecast.
Romania and the Czech Republic led the way with growth of 1.7 per cent and 1.6 per cent respectively in the quarter.
But despite 2013 ending on a stronger and more balanced note, and leading indicators pointing to stronger growth for the current quarter, it'd be a mistake to think it's going to be a doddle from here on in, says Howard Archer of IHS Global Insight.
The pickup is only modest and a number of growth constraints still hold down the area, with credit conditions tight, fiscal policy restrictive and ongoing problems in the banking sector.
Moreover, Eurozone inflation dipped to just 0.7 per cent in January, and bank lending to businesses is still dwindling.
Capital Economics comments that moderate levels of growth at this early stage of the cyclical upswing "should not surprise".
Although today's numbers take some pressure of the European Central Bank (ECB) to act swiftly in taking stimulative action, Archer says:
We [still] expect persistent very low Eurozone consumer price inflation, ongoing difficulties in building growth momentum, and still tight Eurozone credit conditions will prompt further action from the ECB.