What a dramatic turnaround for a region, which has been facing some existential threats!
The 19-nation eurozone is now enjoying the strongest growth in a decade and now some economists are arguing that it’s heading toward a golden period of low-inflationary expansion.
The European Commission last week raised its 2017 growth forecast to 2.2% from 1.7% in May. The International Monetary Fund on Monday said growth across the European region – which includes the euro area as well as developing economies in central and Eastern Europe – is having a positive spillover effect on the rest of the world.
“Growth in the euro area has been positive for 18 quarters, lately around 2.5%. Many countries in Eastern Europe have seen growth around or above 3% for some time already. So this recovery has not only become broader but also stronger,” the IMF said.
For the eurozone, economists surveyed by Bloomberg have raised their growth forecasts eight times this year.
Make no mistake, all the upbeat estimates are for a region, which was seen exporting its political and financial risks to the rest of the world as 2017 was drawing to a close.
Here’s an important question: What is at stake for the Gulf?
The Gulf Co-operation Council wealth funds have invested heavily in Europe. Gulf SWFs provided emergency financing for a number of European banks after the 2008 crisis. As of data available in 2015, total assets acquired by GCC private investors and SWFs in the European Union are estimated at more than €400bn, making them one of the largest foreign investor groups in Europe.
Risks remain, for sure, for Europe.
The bright prospects for the euro region stand in stark contrast to the outlook for the UK, where the uncertainty surrounding the imminent divorce from the EU is crimping investment and weakening the pound.
Recent wounds run deep in the eurozone, too. Productivity growth is nowhere near levels recorded at the start of the millennium; a quarter of young people can’t find a job and unemployment in the region’s periphery still exceeds 10%. Inflation of 1.4% in September remains below the European Central Bank target of just below 2%.
Support for the single currency has yet to reach its 2007 high and eurosceptic political parties have gained ground. Other political shocks such as Catalonia’s bid for independence from Spain have the potential to cause further ruptures.
Eurozone leaders say the common currency is now more resilient in the face of shocks.
No matter the concerns, the eurozone growth momentum is striking for a region that plunged from the global financial crisis into its own sovereign debt turmoil, record unemployment and near-deflation that threatened the very survival of the currency union. While still to make up most of the ground lost in the dark years, and with productivity still weak, the upturn at least holds out the hope that some scars will start to heal.
There are good reasons to think the eurozone growth will gain further traction in 2018; so will the risks. It still makes good news for the world.
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