OLIVER MANGAN: Euro bloc upturn on track

The eurozone economy has lost a good deal of momentum this year, writes Oliver Mangan

GDP grew 0.4% in both the first and second quarters, down from the quarterly growth rates of 0.7% recorded right through 2017.

This slowdown is broad-based, with all the main economies losing momentum.

Survey data suggest the eurozone economy continued to grow at a 0.4% rate in the third quarter. 

The Purchasing Managers’ Index (PMI) and the European Commission’s economic sentiment index were both broadly unchanged from the previous quarter. 

Third-quarter GDP data are released late today and the consensus forecast is that the economy maintained its 0.4% growth rate.

Meanwhile, the limited survey data available for October suggest growth may have lost some further momentum at the beginning of the fourth quarter.

In terms of the labour market, the data have remained positive this year. 

The eurozone jobless rate fell to a near 10-year low of 8.1% in August, compared to 9% a year earlier. 

The tightening labour market is reflected in annual wage growth picking up to 2.3% by mid-year.

ECB president Mario Draghi
ECB president Mario Draghi

Headline inflation has accelerated to over 2% also on the back of higher energy costs, but core inflation remains quite subdued at just 1.1% in September.

The ECB commented on the softer economic data at its Governing Council meeting last week. 

However, while noting that incoming data were somewhat weaker than expected, the ECB was keen to emphasise that the figures were consistent with solid, broad-based economic growth.

ECB president Mario Draghi pointed out that eurozone growth was returning to its potential rate after the above trend performance last year, especially on the export side which had a stellar year in 2017. 

He also commented that uncertainties around global trade were dampening activity, as well as some temporary country-specific factors that should abate in time.

Most forecasters expect the eurozone economy to continue growing at a moderate rate: The ECB and IMF project GDP growth of 2% in 2018 and 1.9% in 2019.

In particular, the ECB has indicated it will not start raising interest rates until next autumn at the earliest and then at a very slow pace.

This should help consumer spending and business investment, and keep the recovery on track.

Oliver Mangan is chief economist at AIB

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