The European Central Bank (ECB) revised growth projections to 1,9% for 2017 (from 1,8%) and 1,8% for 2018 (from 1,7%) on Thursday.
Eurostat’s numbers for the first quarter of 2017 suggests growth could reach an even more robust 2,3%. That means the Eurozone is growing at double the rate of the US economy, currently estimated at 1,2%.
The main drivers of the revision appear to be France and Italy, once the “sick” economies of the Eurozone, currently outperforming projections.
Nonetheless, the ECB President, Mario-Draghi made clear Frankfurt will maintain interest rate policy in a quantitative easing mode, with ultra-low interest rates.
Inflation in the Eurozone has been fluctuating. In April, it reached 1,9%, returning to 1,4% in May. The ECB’s annualized projection fell from 1,7% to 1,5%, presumably due to falling energy prices. That means is well below the 2% objective.
The ECB’s bond-buying programme at a rate of €60bn a month is particularly significant in maintaining monetary stability in view of political volatility in Italy, not to mention an ailing banking system overloaded with non-performing loans and regional banks.
There is now structural pressure between north and south in the Eurozone.
The negative interest rates of the ECB are squeezing margins for fixed-income sectors, such as pension funds, not to mention traditional retail banking that depends on saving accounts. That is a particular problem for Germany, which is Europe’s savers nation, who are now having to accept negative interest rates, while Finance Minister Wolfgang Schäuble is vehemently opposing expansionary policy.