Europe News

Euro zone growth outpaces the US for the first time since the 2008 crash

Euro zone GDP growth rises 0.5%

Euro zone officials received a slew of good news on Tuesday morning with stronger-than-expected growth and inflation figures and a falling unemployment rate.

The 19-member economy saw GDP (gross domestic product) growth of 0.5 percent in the last quarter of 2016 compared to the previous three-month period, and the preliminary figures also showed a 1.8 percent rise compared to the previous year. As a result, in the whole of 2016, the euro area grew 1.7 percent.

This means that for the first time since 2008, during the height of the global financial crisis, the euro area's GDP rose at a faster pace than the U.S., according to official data. Last week U.S. authorities said the economy grew only 1.6 percent in 2016, its weakest pace since 2011.

Meanwhile, flash inflation data projected a rate of 1.8 percent for January, up from 1.1 percent in December. The increase is largely due to higher energy prices, according to the EU's statistics provider Eurostat. The flash estimate comes close to theEuropean Central Bank's target of putting inflation close but below 2 percent.

The ECB has denied calls to start tightening its monetary policy, but some members have expressed that the time to consider the so-called "tapering" of its quantitative easing program is coming.

Taper coming?

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"I am not saying we will make a decision (on tapering) in summer, (but) we will have better information for making a decision in summer," Ewald Nowotny, a member of the ECB's Governing Council said Monday.

He added that the bank will be deciding "what happens in the future" before the end of 2017, the Wall Street Journal reported. Tuesday's flash readings will surely boost the prospects of such a discussion.

"(The latest data) will give the ECB food for thought, but we still expect the bank to be buying assets well into 2018," Jennifer McKeown, chief European economist at Capital Economics, said in a note Tuesday.

Barclays said that Tuesday's data supports its view that headline inflation will keep rising and approach the bank's target in early April. "Moreover, we believe the data were also consistent with our expectation that the recovery in core inflation will take place at a slower pace, essentially driven by a cyclical return of non-energy industrial goods (NEIG) prices while service inflation is likely to remain on the sidelines for a few quarters," the bank added.

Unemployment falls

In terms of unemployment, the euro area registered in December the lowest rate since May 2009. The jobless figure stood at 9.6 percent in December, down from 9.7 percent in November and down from 10.5 percent a year ago.

Looking at particular countries, Germany and the Czech Republic registered the lowest unemployment rate with 3.9 and 3.5 percent, respectively. Greece continues to see the highest number of people unemployed, above 20 percent.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics said in a statement: "The labor market in the euro zone is improving steadily, but divergence between the major economies is still significant."

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