Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Strong Growth Propels Europe’s Economy Toward Health

Posted by hkarner - 5. Mai 2017

Date: 04-05-2017
Source: The Wall Street Journal

1st-quarter GDP expansion is the latest sign indicating the eurozone has turned a corner after years of crisis and slow recovery

Rising consumer confidence in Europe’s economy has helped drive car sales, which has contributed to a brighter growth outlook in the eurozone. An Opel automobile dealership in Berlin. Peugeot agreed to buy the Opel brand from General Motors in March.

Signs of economic revival in the euro currency zone are multiplying, indicating that Europe is finally healing from a crisis-racked decade.

The 19-country eurozone enjoyed a second successive quarter of strong growth in early 2017, outpacing the U.S. Business surveys point to a further acceleration in the current quarter. Markets are rising strongly as confidence in the economic outlook swells. Corporate earnings are rising briskly from a year ago.Eurozone politics also appear headed for greater stability than looked likely only a few months ago, although the outcome of Sunday’s French presidential election remains a risk. Investors, however, are confident that pro-European Union centrist Emmanuel Macron will beat anti-EU nationalist Marine Le Pen. Mr. Macron is leading in opinion polls.

Gross domestic product in Europe’s single-currency bloc grew at an annualized pace of 1.8% in the first quarter, the EU said, maintaining an acceleration over the past year. The purchasing-managers index in April hit a six-year high, suggesting more improvement to come. Economists say the eurozone could grow by close to 2% this year, a fast pace by the region’s standards, especially if France joins Spain and Germany in a more vigorous recovery.

Stronger eurozone growth bodes well for the global economy, which has had to carry a sluggish, export-dependent Europe in recent years. Crucially, the improvement stems mainly from domestic demand, which should benefit companies in the U.S., Asia and elsewhere that sell to the eurozone’s nearly $12 trillion economy. The broadening recovery could also help Europe’s political establishment in its contest for popularity against anti-euro nationalists and populists.

At advertising giant Publicis Groupe SA, sales in France grew 12% in the first quarter. The company tends to be a useful bellwether for the French economy, because its clients are diverse set of French businesses that boost or cut marketing budgets depending on how they are performing.

Publicis Chief Executive Maurice Lévy said the “excellent growth” in early 2017 was particularly surprising given that companies tend to withhold ad spending in the run-up to presidential elections. “This time we didn’t have a period where clients adopted a wait-and-see attitude towards investment because of the uncertainty,” he said.

Growth is spread unevenly, with Italy in particular still struggling. Scars from the crisis years linger in swaths of the eurozone, ranging from high debts and unemployment to weak banks and a legacy of mistrust between creditor and debtor countries.

Still, fears that Europe had forgotten how to grow—widespread in recent years—are quickly receding.

“The recovery feels broad based, it feels resilient, and the pace is decent,” says Greg Fuzesi, an economist at J.P. Morgan in London.

Persistently low oil prices have helped a continent that imports the bulk of its fuel. Eurozone governments, apart from Greece, have broadly stopped fiscal belt-tightening as bond markets have recovered from the eurozone crisis. Germany’s government has raised spending to deal with the influx of refugees. Households and companies have paid down debt, opening the door to more consumption and investment.

And the European Central Bank’s assorted measures to cut the cost of credit, including large-scale bond buying, appear to have made a difference, giving governments and other debtors breathing room, economists say.

Financial markets are embracing Europe’s upbeat growth outlook.

In dollar terms, the Euro Stoxx 50 index is up almost 12.7% this year, nearly double the S&P 500’s gains. The euro has also climbed against the dollar, trading at $1.09 compared with $1.05 at the start of the year, surprising analysts who predicted that the common currency would fall to parity with the greenback.

First-quarter earnings in the Stoxx Europe 600, excluding the volatile energy sector, are expected to increase 6.2% from the same quarter last year, according to Thomson Reuters data.

Helping to drive this increase is a more-confident consumer. Andrea Le Pera, a 37-year-old who lives in Milan and works at a doctors’ pension fund, recently bought a new BMW 2 Series Gran Tourer for his family. “I’m expecting a salary increase later this year, so I was sure I could take on the monthly payments,” he said.

Car sales are rising. Italian-American car maker Fiat Chrysler Automobiles NV reported an 11% rise in first-quarter profit, aided by sales growth in Europe.

Germany’s economy, the eurozone’s biggest, hasn’t published first-quarter growth data yet. Based on the overall eurozone figure, Germany probably grew at an annualized rate of around 2.4%, according to the Kiel Institute for the World Economy, a German think tank.

“Early indicators suggest that the German economy will maintain its momentum…and expand at high rates also in coming quarters,” the institute said.

France is still struggling for liftoff. The economy grew at an annualized 1% in the first quarter. Economists say that a warm winter reduced energy consumption and that the current quarter will show higher growth.

A French acceleration would come too late to affect the election. Years of sluggish growth and stubbornly high unemployment have fed a longstanding sense of national malaise, boosting voter support for populists of the far right and far left.

Many smaller businesses, which make up the backbone of France’s economy, are still struggling to adapt to rising global competition. At Groupe Roux-Jourfier, a 160-employee engineering company that makes components for sectors including aerospace and energy, first-quarter sales were down over 5% from a year earlier. “It’s getting harder and harder to make sales,” said CEO Fabrice Roux. “I have incredible competition from countries that are considered low cost. That includes Spain, four hours’ drive from me.”

In Italy, output remains more than 7% below its level before the 2008 financial crisis. The lack of growth and jobs has sapped voter support for mainstream parties and made the antiestablishment 5 Star Movement, which wants a referendum on the euro, the most popular party ahead of elections due next year. Many observers view Italy as the biggest political risk to the euro’s survival.

Spain’s rebound from its deep slump, however, suggests even crisis-hit Southern Europe can grow inside the euro. Spain’s GDP grew at an annualized 3.2% last quarter, maintaining the same pace as the last two years. The country’s output is expected to surpass its precrisis level in the current quarter.

Spain’s biggest scar from the crisis remains unemployment. At over 18%, it is the highest in the eurozone after Greece. But Spanish employers now are hiring workers rapidly after quickly laying them off during the downturn.

“The Spanish economy is recovering from the great crisis,” said Christian Morales, a 33-year-old who is planning to open a restaurant in Madrid. He is building on the success of his food stall, called Cultura Café Creperie, in a buzzing indoor market in the city.

Mr. Morales is among the beneficiaries of Spain’s tourism boom. A record 75.6 million people visited Spain last year, more than 1.5 times the country’s population. Terrorism and other safety concerns have led travelers to shift their vacations to Spain from other Mediterranean destinations such as Turkey, Tunisia and Algeria in recent years.



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