by: Mehreen Khan
The eurozone has grown at its fastest rate since the eruption of the debt crisis five years ago, underscoring a brighter outlook after elections that eased fears of a populist political threat. Quarterly eurozone GDP growth accelerated from 0.5 per cent to 0.6 per cent in the three months to June, compared with the same period in 2016.
The performance helped to drive year-on-year expansion from 1.9 per cent to 2.1 per cent — the highest rate since the second quarter of 2011.
Separate figures from a business survey showed the eurozone’s manufacturing sector is in the grip of a jobs boom. Factories in France are hiring at their best pace since 2000 and in Spain at a rate not seen since before the start of monetary union in 1998, according to IHS Markit’s purchasing managers’ index.
“This is close to utopia”, said James Nixon, chief eurozone economist at Oxford Economics. The eurozone’s economic health has confounded critics this year after a series of electoral setbacks for Eurosceptic parties in the Netherlands, Austria and France boosted business and consumer confidence.
The bloc’s economy has expanded for 17 consecutive quarters since 2013 and unemployment has dropped to a nine-year low of 9.1 per cent in June. More than 1.5m people left unemployment in the past 12 months, according to Eurostat. “These numbers are at the top of what is possible to be sustained.
If you look at the number of jobs that are being created, this is a very impressive performance,” Mr Nixon said. Spain registered the best growth rate among the eurozone’s largest economies, with 0.9 per cent in the three months to June. The eurozone’s fourth-largest economy has finally exceeded its pre-crisis GDP level after a property crash and a banking meltdown in 2012.
Growth in France edged up to 0.55 per cent from 0.5 per cent. Germany and Italy report second-quarter growth next week. The eurozone expansion has outstripped the UK, which grew 0.3 per cent in the quarter. US growth clocked in at 0.65 per cent.
A brightening world economy, weak exchange rate and still subdued levels of inflation have helped to drive the eurozone’s steady recovery through export growth and higher consumption. Fiscal policy has turned broadly neutral since 2015 after years of severe austerity during the sovereign debt crisis.
Even Greece, beset by a near eight-year depression, clocked up its second consecutive rise in manufacturing activity in July, according to Markit. “Growth has not been concentrated in the traditional hotspots and economies that have traditionally not done so well are also joining in the recovery” said Ken Watrett, managing director of global macroeconomics at TS Lombard.
The 0.6 per cent reading is almost twice the bloc’s average growth in the wake of the financial crisis. Even if growth were to slow to 0.4 per cent in the remaining two quarters of the year, it would drive annual expansion to 2 per cent for the first time since 2007. Economists said the GDP reading was not as buoyant as some euphoric survey measures have suggested.
Sentiment indicators in Germany have hit record levels this year while measures of the private sector economy — as compiled through the PMIs — topped pre-crisis levels in June. The European Commission’s economic sentiment index hit a decade high last week. The slight undershoot in the official figures “shows how much expectations have changed” in the eurozone, added Mr Watrett.