The latest data on euro area's economic growth, employment creation, price stability and credit aggregates suggest that the European Central Bank's (ECB) extraordinary monetary expansion has been effective, and that a revision of its current policy stance would seem appropriate.
In the year to the first quarter, the monetary union's economy continued to advance along a steady 1.6 percent growth path, with a significant acceleration since last January. Industrial output and household spending also showed that the activity's forward momentum was widely shared within this group of 19 countries with very different economic structures and fundamentals.
That is a laudable achievement in view of resource constraints facing the euro area. Here is what that means: Given that the sum of productivity and labor force growth indicates a noninflationary growth potential of less than 1 percent (i.e., somewhere between 0.8 and 0.9 percent), a sustained actual growth rate of 1.6 percent is a cause for cheer, unless you want to worry – as Germans do - about the (long-term?) inflation implications.
The labor market data explain these lingering German anxieties. The jobless rate in the euro area fell to 10.2 percent in March from 11.2 percent a year earlier, as advancing economic growth cut the unemployment by 1.5 million to a total of 16.4 million.
MIA: European solidarity
Germany's fully employed economy showed only 4.2 percent people out of work – the lowest in the euro area – compared with 24.4 percent in Greece and 20.4 percent in Spain. Sadly, the differences in youth unemployment (persons under 25) are even starker: 6.9 percent in Germany (again the lowest in the euro area) and 51.9 percent in Greece, 45.5 percent in Spain and 36.7 percent in Italy.