Euro zone growth sets stage for end to stimulus

FRANKFURT • The euro area kept its growth momentum at the start of 2017, strengthening the case of those pressuring the European Central Bank (ECB) to sketch out an end to extraordinary stimulus measures.

Gross domestic product rose 0.5 per cent in the first three months of the year, according to an initial estimate published by the European Union's statistics office yesterday.

While policymakers have expressed different views on the sturdiness of the 19-nation economy, June seems to be emerging as the month in which the governing council will set the course for a gradual exit from monetary stimulus.

ECB president Mario Draghi has characterised the recovery, now in its fourth year, as "solid and broad" as indicators ranging from manufacturing to employment show signs of picking up and inflation approaches the central bank's goal.

Sentiment in the euro area could be buoyed if France elects Mr Emmanuel Macron as its next president in a May 7 run-off with nationalist Marine Le Pen. Such a result would ease concern about political risks to the single currency.

A Greek deal with bailout creditors on Tuesday also diminishes the risks of a euro break-up as it means the country will probably be able to fulfil bond repayments in July.

Mr Draghi recognised a shift in the economic outlook when he said last week that risks are "moving towards a more balanced configuration". He also maintained that the recovery continues to depend on monetary support and warned against tightening policy too soon.

A report has since shown euro area inflation accelerated to 1.9 per cent, the level the ECB aims to achieve over the medium term, with a measure of underlying price growth at its highest in almost four years.

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A version of this article appeared in the print edition of The Straits Times on May 04, 2017, with the headline 'Euro zone growth sets stage for end to stimulus'. Print Edition | Subscribe