Euro-Area Recovery Keeps Pace as ECB Stimulus Decision Nears

  • Gross domestic product rose 0.5 percent in first quarter
  • ECB set to discuss strategy for future stimulus in June

ECB Keeps Rates Unchanged as Growth Risks Diminish

The euro area maintained its growth momentum at the start of 2017, strengthening the case of those pressuring the European Central Bank to sketch out an end to extraordinary stimulus measures.

Gross domestic product rose 0.5 percent in the first three months of the year, according to an initial estimate published by the European Union’s statistics office on Wednesday. That’s in line with the median estimate in a Bloomberg survey of economists and matches the pace of the previous quarter.

While policy makers have expressed different views on the sturdiness of the 19-nation economy, June seems to be emerging as the month in which the Governing Council will set the course for a gradual exit from monetary stimulus. ECB President Mario Draghi has characterized the recovery, now in its fourth year, as “solid and broad” as indicators ranging from manufacturing to employment show signs of picking up and inflation approaches the central bank’s goal.

“The recovery is steady and it’s becoming more broad-based,” said Marco Valli, chief economist at UniCredit SpA in Milan. “The recovery in 2015 was due to the weakness of the euro. Now we have a more balanced recovery because domestic demand is doing fine and exports are recovering because global trade is recovering.”

The euro remained lower after the release, dropping 0.2 percent on the day to $1.0914 at 12:32 p.m. Athens time.

The number of unemployed people in Germany extended a four-year decline last month, suggesting companies are confident that momentum in Europe’s largest economy remains strong, according to a separate report on Wednesday. The jobless rate was unchanged at 5.8 percent.

Eurostat won’t release data for individual countries until May 16 but some national institutions have already reported preliminary figures.


First QuarterFourth Quarter
France0.3%0.5%
Austria0.5%0.6%
Spain0.8%0.7%
Belgium0.5%0.4%

Sentiment in the euro area could be buoyed if elections in France confirm Emmanuel Macron as the country’s next president in a May 7 runoff with nationalist Marine Le Pen. Such a result would ease concern about political risks to the single currency. A Greek deal with bailout creditors on Tuesday also diminishes the risks of a euro breakup as it means the country will probably be able to fulfill bond repayments in July.

Draghi recognized a shift in the region’s economic outlook when he said last week that risks are “moving toward a more balanced configuration.” At the same time, he maintained that the recovery continues to depend on monetary support and warned against tightening policy too soon.

Since then, a report showed euro-area inflation accelerated to 1.9 percent, the level the ECB aims to achieve over the medium term, with a measure of underlying price growth at its highest in almost four years.

Ewald Nowotny, one of the first policy makers to comment publicly after the Governing Council’s April 27 meeting, told Austrian newspaper Die Presse that officials “will have to discuss” their policy strategy in June.

— With assistance by Kristian Siedenburg, Andre Tartar, and Alessandro Speciale

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