Moribund. Decrepit.
Sclerotic. Popular words to describe the economy shared by the 19 countries of
the euro zone - but perhaps no longer apt.
Very slowly - and
primarily because of massive stimulus from the European Central Bank - the euro
zone is showing signs of recovery. It is a dawn that policymakers are
struggling to nurture into broad daylight.
It also may not be felt
equally across the board, viz Spain and Greece's unemployed versus Germany's
busy builders.
But putting aside for
the moment that the euro zone's nascent recovery is happening just as China is
wobbling and financial markets are unhinged, the numbers look generally
positive.
Economic growth was
running at an annual rate of 1.6 percent in the third quarter. While this may
not seem robust, it is roughly twice the average annual growth rate between
2003 and 2014 (itself dragged down by the sharp contraction of 2009), and the
equal highest rate since 2010.
So, for the euro zone,
reasonably good. ECB forecasters and economists polled by Reuters expect it to
grow at a slightly faster pace this year at around 1.7 percent.
Other data - though
sometimes mixed - also points to a stronger-than-advertised economic
performance.
Unemployment has been
falling fairly steadily. It was at 10.5 percent in November, which is high, but
the lowest in more than four years and well below the 12 percent of 2013.
Consumer confidence is
on the rise and economic sentiment is at a more than four-year high.
Manufacturing, as measured by purchasing managers' indexes, rose firmly into
expansion in 2015, albeit still shy of its 2013 peak.
RELATIVELY SPEAKING
Finding positives in
such data risks comparison with a polite visitor complimenting a dreary
industrial city on its surprisingly good orchestra.
But given where the euro
zone has been - and the many prophets of its political and economic doom - its
relative improvement is being noticed.
"The world’s third
largest economic bloc is actually doing rather well," said Andrew
Milligan, head of global strategy at Standard Life Investments, which is
favoring European equities, bonds and property in its portfolios as a result.
"A number of
drivers are supportive," he said, listing "monetary and fiscal
policy, a somewhat healthier banking system, better real wages growth helped by
lower energy costs, and pent up demand as consumer confidence improves in those
countries that have had a hard few years."
The danger is that it
could all be knocked down in a second by what the finance minister of non-euro
zone Britain, George Osborne, has dubbed a "dangerous cocktail" of
threats to the world economy.
Chief of these is the
economic slowdown in China, which is the broader European Union's
second-biggest trading partner behind the United States. China and the EU trade
around 1 billion euros between them a day, according to the European
Commission.
UBS calculates that a
one percentage point slowdown in Chinese growth would slice 0.1 to 0.3
percentage points off EU growth, which it says "should be
manageable".
A similar slowdown in
emerging markets would lop 0.2 to 0.4 percentage points off growth.
A case can be made,
however, that in Europe - and the euro zone in particular - the economy has
been growing even while China and emerging markets have slowed.
In the first half of
2015, for example, big gun Germany's export growth to China fell to just 0.8
percent and engineering exports shrank by 4.9 percent. Yet German gross
domestic product (GDP) growth was running at 1.8 percent at last count even
with the slide.
The overriding issue,
though, is that the ECB's 60 billion euro ($66 billion) a month stimulus
package is in no danger of ending and can offset much of the impact of trouble
overseas.
Dr.Faisal Zaheer
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