Eurozone's economic recovery 'alive and kicking', ratings agency claims

S&P Global Ratings opines the current recovery in Europe won't be a false dawn and can be sustained.

Eurozone recovery 'alive and kicking', says S&P Global RatingsGetty

The eurozone upturn that started in 2014 is still "alive and kicking" and is unlikely to be short-lived, according to S&P Global Ratings.

In a note to its clients, the ratings agency said everything about the current ongoing recovery "feels different."

Eurostat's detailed GDP release for the second quarter confirmed the eurozone economy expanded by a quarterly 0.6%, in broadly based growth across the major areas of spending.

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Domestic demand increased by 0.5% and net trade provided a small but positive boost to overall growth. Surveys point to still robust growth for the remainder of the year.

"Our forecast has GDP growth at 2.1% this year, well above potential growth for the eurozone that we estimate to be around 1%," S&P noted.

"What's comforting is that first, the above-trend performance is currently common to each of the four largest economies of the eurozone. Second, the dispersion in growth rates across all member countries of the single monetary union is at its lowest since 1999."

Looking ahead, the ratings agency forecast investment to add more support to growth. "Investment added 0.5 percentage point to GDP growth in 2016, and is likely to bring a similar contribution this year and next."

Jean-Michel Six, chief economist for Europe, the Middle East, and Africa, at S&P Global Ratings, said: "The eurozone is the only region in the world that experienced two recessions after the financial crisis, instead of just one like the US or UK: The first one in 2009 and the second one in 2011 and 2012. But this time it's different. This upturn is indeed benefitting the region as a whole."

However, S&P noted the recovery in credit to the private sector remains sluggish. The pickup in loans to households is mainly attributable to strong demand for housing loans while the flow of loans to non-financial corporations remains relatively weak.

The agency also expects the European Central Bank to announce a slowdown in asset purchases in first-half of 2018 with a view to winding them down completely in early 2019.

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"But too strong a euro foreign exchange rate could lead the ECB to taper for a longer time and possibly cut its already negative interest rate on bank deposits," Six concluded.

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