Economic growth in the euro area accelerated slightly to 0.6% quarter-on-quarter in the three months ending June, in line with analysts’ expectations. In the previous quarter, growth was revised down however, from 0.6% to 0.5%. On 12-month basis, GDP growth edged up from 1.9% to 2.1%, also in line with forecasts and the highest since the final quarter of 2015.
The data reinforces the view that the Eurozone economy continues to gain momentum after more than two years of massive asset purchases by the European Central Bank and almost a year and a half of negative interest rates. Today’s figures are based on the flash preliminary estimates from Eurostat, with a more detailed release due on August 16.
The euro was steady just above the $1.18 level in forex markets after the data, having hit a fresh 2½-year high of $1.1845 overnight. The single currency has rallied 14.5% against the US dollar from its January low of $1.0339, which was a 14-year trough.
Expectations that the ECB will announce at one of its upcoming meetings in the autumn its decision to scale back its ultra-loose monetary policy have driven the euro to multi-year highs against its major peers. The ECB has so far moved very cautiously in toning down its easing bias, refusing to drop its pledge to increase the size of its asset purchases if needed in its forward guidance at the July policy meeting.
Subdued inflation and wage growth are the main concern for the central bank. Most indicators point to a broadening of the economic recovery across the region, and even the stubbornly high unemployment rate appears to be setting a path of a steepening downtrend. The Eurozone’s jobless rate declined to 9.1% in June – the lowest since 2009.
However, there are signs that underlying price pressures might be picking up. Monday’s flash inflation reading for July showed core CPI rose unexpectedly to 1.3% from 1.2%, beating forecasts that it would ease to 1.1%. If core inflation continues to surprise on the upside, it would add pressure on the ECB to tighten policy more aggressively than the very gradual pace it has so far signalled to the markets.
