Economics

The eurozone economic boom continues

Quickview: How long can the European Central Bank maintain its extraordinarily loose monetary policy?

30 January 2018

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Initial estimates for GDP growth in the eurozone show another strong quarter of economic expansion. Though real GDP growth slowed slightly from 0.7% in the third quarter (revised up) to 0.6% in the fourth, the eurozone saw annual GDP growth accelerate from 1.8% in 2016 to 2.5% in 2017 – marking the fastest annual growth rate since 2007.

Encouraging growth from France and Spain

As this is the initial estimate, few details are available at this time. However, within the eurozone, France and Spain both also released flash estimates of GDP growth. France saw growth accelerate from 0.5% in the third quarter to 0.6% in the fourth, which means annual growth picked up markedly from 1.1% in 2016 to 1.9% in 2017.

Meanwhile, Spain grew by 0.7% in the fourth quarter compared to 0.8% in the previous quarter. On an annual basis, Spain enjoyed another strong year, growing by 3.1% in 2017, though this is a slight deceleration compared to 3.3% GDP growth in 2016.

Could QE be withdrawn before September?

The latest growth data supports the more hawkish comments coming from some members of the European Central Bank’s (ECB) governing council. They argue that with the economy booming and deflation risks defeated, it may be time to withdraw the extraordinary monetary stimulus in place.

The ECB’s quantitative easing (QE) programme is due to end in September; however, the risk is growing that the ECB brings QE to an end sooner, before starting to consider when to raise interest rates.

The concern amongst the committee is that a speedy exit from current policy could drive the euro higher against other major currencies, which could dent recent growth, and hamper the recovery in inflation.

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