Eurozone growth revised up to 2-year high

Posted June 10, 2017

Inflation dynamics are "still dependent on the extension of our current monetary policy", European Central Bank boss Mario Draghi emphasized recently, to help justify his bond purchase program, which will run until the end of 2017 at least.

At that rate, the 19 countries that use the euro would see growth at 2.3% this year, almost double the rate of the U.S., which is on course to grow 1.2%.

US and European stocks were little changed on Thursday as investors digested testimony from former FBI Director James Comey before a Senate panel, while the euro fell after the European Central Bank kept interest rates on hold and oil prices briefly touched one-month lows.

By excluding those two words, the statement seemed to rule out interest rates falling further into negative territory in the foreseeable future.

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Mr Draghi said: "The risks surrounding the euro area growth outlook are considered to be broadly balanced".

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Eurostat earlier estimated that the eurozone economy grew by 0.6 per cent in the first quarter of 2017, up from 0.5 per cent in the final quarter of 2016.

That came after the European Union statistics agency Eurostat earlier revised up its estimate of first quarter growth to its fastest rate in two years, saying the economy of the 19-country euro zone expanded by 0.6 per cent quarter-on-quarter and by 1.9 per cent year-on-year.

It was a small verbal step toward an announcement, expected later this year, that the bank will taper and end its extraordinary monetary stimulus as growth and inflation improve.

But analysts saw the decision to drop the rate cut wording as a sign that the bank might be getting ready to wind down its stimulus program, which began in March 2015.

The ECB also reduced its inflation projection to 1.5 per cent in 2017, down from 1.7 per cent previously, reflecting lower global oil prices rather than any change in underlying price pressures.

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The central bank's statement kept important wording that its bond-buying stimulus program could be stepped up if the economic outlook worsens.

Mr Draghi said that the European Central Bank would continue its stimulus programme buying bonds, adding that the "ECB will be in the market for a long time". Many analysts expect the bank to start tapering them in the early part of next year, in part because the ECB may start running out of eligible bonds to purchase.

The bond purchases, made with newly printed money, are aimed at increasing inflation from its current annual 1.4 percent toward the central bank's goal of just under 2 percent.

Ending the bond purchases and raising interest rates could have wide-ranging effects, such as a stronger euro and higher interest costs for heavily indebted governments. That is in effect a tax aimed at pushing them to lend the money instead of hoard it.

It's being held in Tallinn, Estonia, one of the occasional meetings held away from the bank's Frankfurt headquarters.

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