It looks like the eurozone recovery is picking up. The latest data shows that economic growth has exceeded expectations.
Eurozone GDP rose by 0.3% in the fourth quarter of last year, beating the consensus forecast of 0.2%.
The area’s biggest and second-biggest economies, Germany and France, drove the increase. Germany expanded by 0.4%, while France’s GDP rose by 0.3%, prompting RBS analyst Richard Barwell to say that “reports of the terminal decline of the French economy have been grossly exaggerated”.
In both economies, investment had an important role in the expansion, suggesting that the recovery has legs. In France there was an increase of 0.9% in corporate investment, while in Germany the Statistics Office said “capital investment developed positively”.
“The story of recovery and repair in the periphery continues to broaden out”, Barwell said. “Concerns over perma-recession in the periphery are fading fast from the memory.”
Shares up, and the euro hits a three-week high
European shares were higher Friday after the data was published, and the euro hit a three-week high to the dollar.
Some big European companies have both fed and felt the recovery. France’s Renault saw its operating profit jump by 59% to €1.24bn (£1.02bn), mainly due to delivery growth for its low-cost Dacia models.
And vehicle manufacturer Daimler – maker of Mercedes cars – saw its fourth-quarter operating profit surging to €2.53bn from €1.74bn in the same period of 2012.
But in a sign that it is too early to say for sure that the timid recovery will turn into a boom, some other European companies’ earnings missed expectations.
For example, Dutch telecom firm KPN reported a 63% fall in profit in the period, due to the weakness of its domestic market and an impairment charge.
Other economic indicators, too, show that the eurozone recovery is still fragile. Retail sales fell 1.6% in December from the previous month, while inflation was less than half the European Central Bank’s 2% target in January.
All this is likely to increase calls on the ECB president, Mario Draghi, to loosen monetary policy further in an attempt to avoid deflation.
Jonathan Loynes, chief European economist at Capital Economics, believes that the eurozone’s economic growth “is likely to remain a long way short of the rates needed to tackle the problems of sky-high unemployment and crippling debt levels” in many of its countries.
“Accordingly, we don’t think the fourth quarter’s modest expansion precludes the urgent need for more policy action from the ECB,” he says.
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