Reasons for optimism: Europe's GDP growth signals wider rebound

Reasons for optimism: Europe's GDP growth signals wider rebound

14 May 2015, 13:52

Euro area's economic growth has picked up in the first quarter, rising 0.4 percent compared to the last quarter of 2014 and outpacing the United States and the United Kingdom for the first time in four years.

The pickup was led by France, Italy and Spain. Not Germany. This may signal Europe is finally getting rid of the lasting consequences of the financial crisis.

Indeed, four of the euro area's largest economies all reported rises in GDP in the first three months of 2015. Analysts immediately started wondering whether the bloc has finally broken through the lasting effects of the crisis. "Escape volatility" is what economists call it, Deutsche Welle says.

Teunis Brosens, a eurozone economist at ING, underscores that by European standards, the bloc had a great first quarter but it is still necessary to see to what extent it follows up in the second quarter.

Despite the doubts, the sure thing was that the recovery is getting more balanced.

Previously, the rebound relied mainly on Germany, but this time, its growth was disappointing, as it slid to 0.3 percent from 0.7 percent at the end of last year. This was eased by expansion in France and Italy - economies which some months ago were on the verge of stagnation.

The main drivers of the improved activity were low oil prices, a weak euro and increased stimulus from the European Central Bank (ECB), though there are factors which make analysts cautious.

Spain and Greece, along with some other countries, still face record-high unemployment, while others are struggling to cope with dramatic debt burdens.

The European Commission on Wednesday underlined those impediments, as it released its annual economic policy recommendations for all EU members except those in bailout programs (Greece and Cyprus).

There was enough space for Germany's balanced budget to maneuver fiscally and do more public investing, especially on strengthening the country's passe infrastructure, the institution said, adding that France should capitalize on its newly positive numbers and use "all windfall gains for deficit reduction."

The Commission noted Italy was right to slow the pace of its fiscal consolidation so that not to create dangers for the country's delicate recovery.

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