Euro-Area Growth Eases Pressure on Draghi for Stimulus
Comment of the Day

February 14 2014

Commentary by David Fuller

Euro-Area Growth Eases Pressure on Draghi for Stimulus

Here is the opening for this welcome report from Bloomberg:

The euro-area economy expanded more than forecast in the final quarter of 2013, led by Germany and France, easing pressure on the European Central Bank to take action next month to counter low inflation and spur growth.

Gross domestic product in the euro zone rose 0.3 percent after a 0.1 percent increase in the third quarter, the European Union’s statistics office in Luxembourg said today. That beats the median forecast of 0.2 percent in a Bloomberg News survey of 41 economists. For the full year 2013, GDP fell 0.4 percent.

ECB President Mario Draghi on Feb. 6 put investors on a month’s notice for further economic stimulus, saying the Frankfurt-based central bank needed “to get more information” on the recovery before making any decision. “We are willing and we are ready to act,” Draghi said after the ECB held its benchmark interest rate at a record-low 0.25 percent.

Today’s GDP report “slightly eases some of the appreciable pressure on the ECB to take immediate further stimulative action,” said Howard Archer, chief European and U.K. economist at IHS Global Insight in London. “Nevertheless, we expect persistent very low euro-zone consumer price inflation, ongoing difficulties in building growth momentum and still-tight euro-zone credit conditions will prompt further action from the ECB.”

David Fuller's view

This is a modest gain but no small achievement given Euroland’s mostly self-inflicted problems, not to mention the bearish consensus.  We are a clever species, albeit too often carelessly and wantonly destructive.  Mario Draghi deserves most of the credit for this partial recovery.  He will not always be running the ECB so hopefully national governance will improve as well.   

What about Europe’s stock markets?

They remain competitively priced and are benefiting from an extremely positive monetary tailwind, which will certainly persist while Mario Draghi is allowed to continue with his policies.  The Euro STOXX 50 and DJ Euro Banks Index remain on course for further recoveries.  Clear breaks of the rising 200-day moving averages would be required to question this outlook.

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