Euro-Area Growth Eases Pressure on Draghi for Stimulus
The euro-area economy expanded more than forecast in the final quarter of 2013, led by Germany and France, easing pressure on the European Central Bank to take action next month to counter low inflation and spur growth.
Gross domestic product in the euro zone rose 0.3 percent after a 0.1 percent increase in the third quarter, the European Union’s statistics office in Luxembourg said today. That beats the median forecast of 0.2 percent in a Bloomberg News survey of 41 economists. For the full year 2013, GDP fell 0.4 percent.
ECB President Mario Draghi on Feb. 6 put investors on a month’s notice for further economic stimulus, saying the Frankfurt-based central bank needed “to get more information” on the recovery before making any decision. “We are willing and we are ready to act,” Draghi said after the ECB held its benchmark interest rate at a record-low 0.25 percent.
Today’s GDP report “slightly eases some of the appreciable pressure on the ECB to take immediate further stimulative action,” said Howard Archer, chief European and U.K. economist at IHS Global Insight in London. “Nevertheless, we expect persistent very low euro-zone consumer price inflation, ongoing difficulties in building growth momentum and still-tight euro-zone credit conditions will prompt further action from the ECB.”
The euro extended gains against the dollar after today’s data were released, trading at $1.3697 at 12:12 p.m. in Brussels, up 0.1 percent on the day.
Germany, Europe’s largest economy, fueled the expansion with 0.4 percent growth in the fourth quarter, while French GDP rose 0.3 percent. Both results exceeded economists’ forecasts.
“Germany remains the economic stronghold of the euro zone,” Carsten Brzeski, an economist at ING Group NV in Brussels, said in an e-mailed statement. “Looking ahead, the German economy should gain further momentum. Filled order books and the latest inventory reductions bode well for industrial production in the coming months.”
Italy’s economy grew 0.1 percent after stagnating in the third quarter, today’s data showed. Still, the country’s recovery is “weak and uncertain,” Bank of Italy Governor Ignazio Visco said on Feb 8. Dutch GDP rose 0.7 percent.
The news from the euro area’s periphery was generally positive, with Spanish and Portuguese GDP up 0.3 percent and 0.5 percent, respectively. In Cyprus, the economy shrank 1 percent from the third quarter. Greece’s contraction slowed to an annual 2.6 percent in the fourth quarter, based on non-seasonally adjusted data.
Today’s report added to signs that the euro area’s nascent recovery is gaining momentum. Factory output expanded faster than initially estimated in January, and economic confidence increased for a ninth month, led by the services industry.
The recovery is starting to be felt by some of its biggest companies. Renault SA, Europe’s third-largest carmaker, said 2013 operating profit jumped 59 percent as low-cost models from the Dacia brand pushed delivery growth and the company lowered costs.
Daimler AG, the third-largest maker of luxury vehicles, posted a 45 percent surge in fourth-quarter profit. Alcatel-Lucent SA, the French network supplier, reported its first quarterly profit in two years on Feb. 6.
Not all the signs are encouraging, however. The euro area’s non-seasonally adjusted trade surplus narrowed to 13.9 billion euros in December from 17 billion euros a month earlier, a separate Eurostat report showed.
Industrial production slipped 0.7 percent and retail sales dropped 1.6 percent in December from a month earlier. Inflation remained below half of the ECB’s ceiling in January, driven by falling energy prices.
“We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said last week. “This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics.”
The ECB will publish quarterly macro-economic forecasts next month, including its first inflation prediction for 2016, which in the past have provided supporting evidence for further easing.
Draghi said that ending the absorption of crisis-era bond purchases was one option for further action. Other possibilities include issuing fresh long-term loans to the region’s banks.
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