So, is it actually the
euro zone that's strong and stable?
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[June 17, 2017]
By Jonathan Cable
LONDON (Reuters) - The deluge of cash
poured into the euro zone economy in recent years by the European
Central Bank appears to have finally resulted in solid - and more
importantly, steady - economic growth, along with rising inflationary
pressures.
To borrow a phrase from British Prime Minister Theresa May's ill-fated
election campaign, it's beginning to look strong and stable.
As well as cutting borrowing costs to rock bottom, the European Central
Bank has bought well over a trillion euros of mainly government bonds as
part of a battle to drive growth and get inflation back to its 2 percent
target ceiling.
At last, the ultra-loose monetary policy appears to be paying dividends.
Euro zone growth hit its fastest rate in two years at the start of 2017,
and while it has probably slowed a tad this quarter, it remains robust.
[ECILT/EU]
This has turned a well-established industry of bemoaning the single
currency bloc's poor performance on its head.
"The ECB's billions are increasingly filtering through to the real
economy. It is somewhat through gritted teeth that we expect two to
three further years of buoyant euro zone economic growth," said Jorg
Kramer at Commerzbank.
A flash purchasing managers' index on the coming Friday will provide the
first clue on whether May's momentum, which suggested quarterly economic
growth of 0.7 percent, has carried into June. A Reuters poll predicted
it largely has.
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"The euro zone has led the developed world upturn, according to the PMI
surveys, with the region enjoying its fastest growth for six years so
far in the second quarter," wrote Bernard Aw, an economist at IHS Markit
which compiles the PMI surveys, in a research note.
Earlier this month the ECB closed the door on more interest rate cuts,
judging the bloc's economy to be rebounding, but said inflation looks to
remain weak for years so it still needs to keep extraordinary stimulus
in place.
That stance stands in stark contrast to the United States Federal
Reserve. It jacked up borrowing costs for the second time in three
months in the past week and said it would begin doing the opposite to
the ECB and start cutting its holdings of bonds and other securities
this year.
BRITAIN
Even in Britain, which is about to embark on two years of talks to
extricate itself from the European Union, three of eight policymakers at
the Bank of England voted this week to raise interest rates.
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![](../images/061717pics/busine87.jpg)
The European Central Bank (ECB) headquarters in Frankfurt, Germany,
July 29, 2016. REUTERS/Ralph Orlowski/File Photo
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The chances Britain ends up outside the single market when Brexit talks are
concluded have receded somewhat after last week's election, although the pound
might weaken further against other currencies, a Reuters poll of economists
found in the past week.
EU member states meet in the coming week to review the latest developments in
negotiations.
May had been expected to win a landslide victory but as voting day approached
opinion polls narrowed and in the end May failed to get a majority in
parliament.
She had repeatedly said she would be prepared to walk away from negotiations
without a deal if necessary. But she now might find that more difficult to do
and will have to take a softer line.
"The hung parliament resulting from last week's election has increased the risk
of a slowdown in UK GDP growth due to heightened political uncertainty," said
Jennifer McKeown at Capital Economics.
Britain's economy slowed more sharply than first thought in early 2017 as
consumers felt the hit from rising inflation, official data showed last month,
losing a lot of its momentum of last year.
In a light week for economic data, public borrowing numbers for the UK will be
the main release where a small improvement is predicted, but with growth risks
moving to the downside further major improvements may be difficult to achieve.
Otherwise, U.S. home sales reports are the coming week's key data, with a slight
pick up in housing starts predicted.
Fed Vice Chair Stanley Fischer and New York Fed William President Dudley, along
with several other Federal Open Market Committee participants, will speak on
monetary policy, possibly offering more clarity.
Wall Street's top banks brought forward their expectations for when they think
the Fed will begin reducing its $4.5 trillion bond portfolio to as early
September, and see balance sheet reduction as more of a priority than another
interest rate rise, a Reuters poll showed. [FED/R]
Central banks in Mexico, New Zealand, the Philippines and Taiwan also meet in
the coming week.
(Editing by Jeremy Gaunt)
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