Economic growth gathers pace in the eurozone

Europe

During May, Greece finally managed to thrash out a deal with its international creditors that would release a further tranche of bailout cash to allow Greece to meet its upcoming debt repayment obligations. Following the confirmation of the deal, an International Monetary Fund (IMF) spokesperson commented, “Our European partners and all the other stakeholders all now recognise that (Greece’s) debt is… highly unsustainable… they accept that debt relief is needed… and I think they are also beginning to accept more realism in the assumption”.

News of the successful deal provided a welcome boost for investor sentiment. Greece’s benchmark ASE Index soared by 10.8% over May, and registered a year-to-date rise of 2.5%. Meanwhile, France’s CAC 40 Index climbed by 1.7% during May, but registered a year-to-date decline of 2.8%. Elsewhere, Germany’s Dax Index rose by 2.2% during May, but has fallen by 4.5% since the start of the year. First-quarter profits at German car manufacturer Volkswagen plummeted by almost 20% following the scandal surrounding the manipulation of emissions tests.

The rate of unemployment in the eurozone stood at 10.2% in April, compared with 11% in April 2015. Germany’s rate of unemployment remained at 4.2% during the month, while France’s rate of unemployment eased from 10.1% to 9.9%. Although the eurozone remained mired in deflationary territory during May, the overall rate of deflation posted a slight recovering, improving from -0.2% in April to -0.1%.

The eurozone’s economy registered quarterly growth of 0.5% during the first three months of 2016. France’s economy grew by 0.5%, while Spain posted growth of 0.8%. Meanwhile, Greece’s economy shrank by 0.4%, and Latvia’s economy tipped into recession. In contrast, Romania registered the strongest economic growth in the European Union (EU) during the period, expanding by 1.6%. Having grown by 0.3% during the final three months of 2015, Germany’s economy expanded by 0.7% during the period. However, industrial production in Germany contracted during March, raising fears that the pace of Germany’s expansion could begin to lose momentum.

According to the European Central Bank’s (ECB’s) most recent Financial Stability Review , Europe’s financial system has shown “resilience in (the) face of rising vulnerabilities” over the past six months, although the risk of further financial stress remains. Nevertheless, financial institutions in the eurozone have made “steady process” in reinforcing their balance sheets and increasing their resilience to potential shocks.