EU Confidence Growing, ECB Cautious
04/27/2017 06:06:00 AM
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EU Confidence Growing, ECB Cautious 04/27 06:05
Further evidence emerged Thursday that the economy in the 19-country
eurozone has moved up a gear or two in the early months of the year.
FRANKFURT, Germany (AP) -- Further evidence emerged Thursday that the
economy in the 19-country eurozone has moved up a gear or two in the early
months of the year.
However, with uncertainties remaining over the outcome of the French
presidential election and inflation still low, the European Central Bank is not
expected to signal an end to its stimulus programs when it wraps up its latest
policy meeting Thursday.
ECB President Mario Draghi is still likely to note during his press
conference the recent array of good news on the eurozone economy, the latest of
which came from a survey by the the European Union's executive Commission
According to the Commission, economic sentiment across the eurozone is at
its highest level for nearly a decade. In its monthly survey of the region, it
said its economic sentiment indicator rose by 1.6 points in April to 109.6, the
highest since August 2007, when early signs of the global financial crisis were
The Commission said the increase was broad-based across sectors, including
industry and retail, and across countries, most strongly in the big three of
Germany, France and Italy.
The findings echo other recent surveys suggesting that the eurozone economy
has picked up steam this year despite concerns related to a run of elections in
Europe and Britain's exit from the EU.
Research firm Capital Economics said the Commission's survey "looks
consistent with a sharp acceleration" in annual eurozone GDP growth from the
fourth quarter's 1.7 percent to over 2.5 percent. That rate of growth has been
common in the United States in recent years but rare in the eurozone, which has
struggled with a debt crisis that raised questions over the future of the euro
currency itself. With those financially strained countries --- even Greece ---
now showing improvements in their budgets, there are hopes that uncertainty
over the eurozone itself will abate further.
Analysts also think that Draghi will give no sign that the bank is ready to
start withdrawing its stimulus in order not to create any uncertainty for
markets before the second round in the French presidential election between
centrist Emmanuel Macron and far-right Marine Le Pen.
The stimulus entails injecting 60 billion euros ($65 billion) a month into
the financial system by buying bonds. The purchases are set to run at least
through the end of the year, and in any case until inflation shows a convincing
turn upward toward the bank's goal of just under 2 percent considered consisted
with a strong economy. The ECB has also cut its benchmark interest rate to
zero, and started charging a fee on deposits it takes in from banks, in effect
pushing them to lend the money to business instead of hoard it.
Draghi has said the stimulus is a safeguard against the risk of political
events derailing the recovery. The eurozone economy grew by a relatively robust
quarterly rate of 0.4 percent in the final three months of last year, but
unemployment remains elevated at 9.5 percent and annual inflation is still
subdued at 1.5 percent.
Ending the bond purchases would have wide-ranging consequences for
governments, investors and savers. It would likely lead to higher long-term
interest rates, raising costs for borrowers such as governments and home
buyers. Higher returns on bank deposits and bonds would mean less incentive to
put money in riskier assets such as stocks.
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