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Spotlight: Eurozone recovery on track amid headwinds

Editor: Wang Lingxiao 丨Xinhua

02-01-2017 11:03 BJT

BRUSSELS, Jan. 31 (Xinhua) -- Fresh eurozone economic data showed a bigger-than-expected leap in growth, inflation and employment, indicating that the bloc's economy keeps its recovery trend amid the political uncertainty sparked by Britain's Brexit vote and the election of Donald Trump in the United States.

Gross domestic product (GDP) of the 19-country eurozone expanded 0.5 percent in the fourth quarter of 2016, taking the full-year growth in 2016 to 1.7 percent, Eurostat, the statistical office of the European Union (EU) said on Tuesday.

It is the first time since the crisis-year of 2008, eurozone's growth speed exceeded the US which gained 1.6 percent last year.

The figure, which was nudged up from the 0.3 percent in the third quarter, could be well received in Brussels as European policy makers have been long cautioned about the bloc's subdued growth as well as unexpected downturns stirred by Brexit.

Eurozone's powerhouse Germany saw quarterly growth of 0.5 percent between October and December while France, the second largest economy in the single currency zone, surprised the market with 0.4 percent, twice as fast as in the second quarter.

"The Eurozone economy is in rude health," Claus Vistesen, Chief Eurozone Economist of Pantheon Macroeconomics said. He explained, though the data do not give any details, but advanced data in France, and the early estimate for Germany by the Bundesbank, suggest that a broad-based increase in domestic demand was the key driver.

Vistesen estimated that growth in the eurozone would slow a tad to 1.5 percent in 2017. "Which would still be decent, and above our estimate of the long-run trend at 1.0 percent-to-1.2 percent."

Furthermore, supported by stronger economic growth, the eurozone's unemployment rate fell to 9.6 percent in December 2016, reaching the lowest level since May 2009.

The unemployment rate of people under age 25 in the eurozone also decreased to 20.9 percent from 21.8 percent in December 2015.

But youth unemployment was still high in Greece, Spain, and Italy, where it was all above 40 percent.

Meanwhile, annual inflation in the eurozone is expected to be 1.8 percent in January, the highest since February 2013, fueled by a surge in energy prices, Eurostat said in another report on Tuesday.

The 1.8 percent annual inflation was up from 1.1 percent in December, reaching the European Central Bank's (ECB) medium-term target of below, but close to 2.0 percent, which is considered most suitable for a healthy economy.

Though higher inflation may hurt consumer spending, it also helped push up wages and stimulate economic activity so as to help economic growth.

The figures are likely to provide relief to policy makers at ECB who have resorted to massive monetary stimulus programs to get inflation up to its target.

But the so-called core inflation, which excludes volatile prices of fuel and food, was stable at 0.9 percent year-on-year in January.

The Eurozone GDP ended 2016 on a positive note and inflation rose sharply in January, said Jennifer McKeown, chief European Economist at Capital Economics.

Tuesday's figures would give the European police makers food for thought, but the bloc's central bank is still expected to maintain massive stimulus measures in a bid to bolster the bloc's growth and reach inflation goal of "close but below 2 percent," said McKeown.

Economists of Pantheon Macroeconomics also agreed that the ECB will stick to its guns in the first quarter of 2017, emphasizing still-low core inflation.

In December, the ECB extended its bond buying program by nine months until the end of 2017, but from April, will buy only 60 billion euros (65 billion U.S. dollars) of bonds a month, rather than 80 billion euros.

ECB officials said they were ready to ramp up purchases again if the growth and inflation outlook darkens.

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