The Eurozone’s economy grows twice as fast as the US

STEPHANIE LECOCQ

Mario Draghi, President of the European Central Bank (ECB) and Chair of the European Systemic Risk Board, attends a hearing of the European Parliament Committee on Economic and Monetary Affairs (ECON) in Brussels, Belgium, 29 May 2017. Daghi attends the hearing to present and discuss the ECB's perspective on economic and monetary developments.

The Eurozone’s economy grows twice as fast as the US


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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.

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