Europe’s recovery gains speed, faces obstacles
By DAVID McHUGH
the associated press | May 15,2014
ap file photo
The euro sculpture stands in front of the headquarters of the European Central Bank, ECB, in Frankfurt, Germany.
Official figures are expected to confirm that Europe’s recovery from recession gathered pace in the first three months of the year. But the recovery is filled with worries, so much so that the European Central Bank is poised to deliver stimulus measures that are more usual for economies mired in recession rather than those on the upswing.
FRANKFURT, Germany — Official figures are expected to confirm that Europe’s recovery from recession gathered pace in the first three months of the year.
But the recovery is filled with worries, so much so that the European Central Bank is poised to deliver stimulus measures that are more usual for economies mired in recession rather than those on the upswing.
Figures on Thursday are expected to show that the economy of the 18 countries that use the euro expanded by 0.4 percent in the first quarter from the previous three-month period. That’s double the rate recorded in the previous quarter and would mark the fourth straight quarterly expansion.
The recovery is clearly a source of hope for a region that’s spent most of its time since 2008 in the midst of crisis. The global financial crisis, which threatened the banking system, exposed the weak underbelly of the whole euro project — the shaky state of the public finances of many of the currency’s users, including Greece, Portugal and Italy.
Growth, even if shaky or uneven, is key to moving past those troubles.
Positive signs of late include:
— Five straight months of modest declines in the number of unemployed people. A year ago there were fears that unemployment in the eurozone would breach the 20 million mark. It’s now fallen to around 18.9 million and the rate has declined to 11.8 percent from the record 12 percent.
— Surveys of purchasing managers have pointed to a pick-up in sentiment among business executives at levels indicating solid expansion.
— Buoyant growth in Germany, Europe’s biggest economy. The country and its high-value exporters have benefited hugely from the rebound in world trade.
— Glimpses of recovery in those countries hardest hit by troubles over too much debt. Spain, which needed a 41 billion-euro ($56 billion) bailout loan from other eurozone countries to rescue its banking system, has already reported growth of 0.4 percent for the quarter, its highest in around six years. And Greece’s output may have halted its plunge, though its economy is some 25 percent smaller than its peak in 2008.
Yet, amid all that, European Central Bank head Mario Draghi all but promised more stimulus measures when the bank’s rate-setting council next meets on June 5. Draghi said last Thursday that the council was “comfortable with acting next time.”
Measures could include an interest rate cut, as well as unconventional steps such as charging banks a negative interest rate for money deposited with the central bank — in the hope they opt to lend to businesses and consumers instead.
These sort of measures are more common when central banks are dealing with a deep recession or crisis such as the one following the collapse of U.S. investment bank Lehman Brothers in 2008 — not during a rebound.
Here’s why the eurozone recovery may need more help:
— Inflation is dangerously low at an annual rate of only 0.7 percent. That’s well below the ECB’s goal of just under 2 percent. Low inflation makes it harder for countries to pay down excessive debt levels they have built up. There’s still a risk the eurozone might fall into outright deflation, a downward price spiral that has the potential to choke off growth if consumers delay spending in the hope of bargains further down the line or businesses grow reluctant to invest or innovate.