The euro zone
economy started the year with robust growth that outstripped that of the United
States and set the stage for a strong 2017, preliminary estimates showed on
Wednesday.
The improving
economy may weaken the euroskeptic parties that have gained ground in several
European Union states over the past years, many of which have denounced the
poor state of their economies and called for ditching the euro and returning to
national currencies.
The gross
domestic product of the 19-country euro zone bloc grew by 0.5 percent on the
quarter in the first quarter, which translates to annualized growth of 1.8
percent in all of 2017, the European statistics agency Eurostat said.
The
preliminary euro zone figure is much higher than the 0.7 percent annualized
growth recorded in the United States in the same quarter, the weakest
performance since the first quarter of 2014, according to U.S. estimates.
The weaker
performance of the U.S. economy was a blow for the administration of Donald
Trump, who has promised strong growth with a protectionist agenda.
The
contrasting data from the U.S. and the euro zone may weaken the French
presidential candidate Marine Le Pen, who is calling for tariff barriers to
protect the French economy. She faces free-trade supporter Emmanuel Macron in a
May 7 runoff, which polls show Macron is likely to win.
In a further
sign of a healthier recovery of the euro zone, Eurostat raised to 0.5 percent
from 0.4 percent its figures on growth in the fourth quarter of 2016. The
year-on-year estimate for the last quarter was also revised up, to 1.8 percent
from the previous 1.7 percent.
Political
risks, however, still represent a possible drag on euro zone growth.
"The
economy is proving to be resilient to uncertainty both abroad and at home. Bar
a surprise at the French elections on Sunday, euro zone growth is set for a
strong 2017," warned Bert Colijn, senior economist at ING.
Euroskeptic
parties are also on the rise in Italy, the euro zone's third-largest economy,
which may hold general elections in the coming months. No date is set, but they
would come no later than next May.
Eurostat did
not break down the components of the GDP growth, but economists expected it was
led mostly by domestic consumption and business investment.
Weaker
domestic demand might reduce the pace of the expansion in the coming quarters
as consumer prices rise.
"There
remains the possibility that growth could be hampered by consumers being more
reluctant to spend as their purchasing power is squeezed by overall higher
inflation and limited wage growth in most countries," Howard Archer, chief
European economist at IHS Markit said.
First
estimates released in April show inflation in the 19-country currency bloc was
1.9 percent year-on-year in April, up from 1.5 percent in March and just short
of the four-year high of 2.0 percent recorded in February.
But euro zone
inflation figures continue to fluctuate. Data on industrial producer prices,
also released by Eurostat on Wednesday, showed a marked slowdown in March.
Producer
prices fell 0.3 percent in March and year-on-year growth slowed to 3.9 percent
from February's 4.5 percent, which was the highest in more than five years.
"It seems
that the slowdown in producer price inflation largely reflected energy effects,
which should continue to bear down on producer and consumer price inflation
over the rest of the year," said Jack Allen, European economist at Capital
Economics, noting that the ambivalent figures are likely to leave the European
Central Bank's stimulus program unchanged this year.
*Reuters*
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