The Strategist

Cheap euro promoted economic upturn in Germany


02/01/2017 - 10:35



Economic situation in the euro area has improved in the fourth quarter of 2016. GDP growth accelerated, unemployment fell to a record low for the past seven years, and higher fuel prices spurred inflation. The ECB, however, is not going to tighten monetary policy, one of the main beneficiaries of which was the German economy. The country's current account surplus, according to experts, has become the highest in the world.



yeowatzup
yeowatzup
At the end of 2016, GDP growth in the euro area and the European Union has accelerated to 1.7% and 1.9% respectively. This preliminary assessment was published by Eurostat yesterday. In the fourth quarter, year-to-year figures were even higher - 1.8% and 1.9% (the same as it was in the third quarter, but higher than for the first half of the year). In 2015, the Eurozone’s GDP increased by 1.6%, GDP of the EU – by 1.9%.

Inflation in the euro area (in annual terms) has also accelerated, and rose from 1.1% in December 2016 to 1.8% in January 2017 - its highest level since February 2013. Bulk of the increase, however, occurred thanks to energy prices (8% yoy). Excluding energy products and food, annual inflation remained at 0.9%. According to ECB’s President Mario Draghi, the regulator will align its future decisions with core inflation – it is assumed that the QE program will be operating at least until the end of the year. However, Head of Bundesbank (and a member of the ECB Board) Jens Weidmann said that steady growth of inflation gives good reasons for monetary tightening.

By the end of the year, level of unemployment in the euro zone fell to 9.6% - its lowest level since May 2009 (10.5% a year ago). Average rate is lower in the EU - 8.2% (9% in 2015). Among the major European economies, unemployment rose only in Italy - up to 12%. Given seasonal fluctuations, its lowest levels were recorded in the Czech Republic and Germany (3.5% and 3.9%), the highest figures belong to Greece (23%) and Spain (18.4%). Unemployment in Germany, in particular, proved to be the lowest since 1990 against the background of accelerating GDP growth. According to analysts, it will add 1.9% (in 2017, however, according to official forecasts, the growth rate may slow to 1.4 %).

The largest Eurozone economy was supported by export. According to German Ifo Institute, the current account surplus last year reached a record $ 297 billion (last year - $ 271 billion, official statistics for December is not yet published). Recall, surplus on the current account consists of trade in goods and services, wages, investment income, and is equivalent to total export of capital from the country. Germany’s surplus of trade in goods (from January to November it amounted to $ 255 billion) is second only to China, but total current account surplus in China last year was lower - $ 245 billion, calculated at Ifo. It is worth noting that Germany is exporter of final goods, many of which are assembled in Eastern Europe.

The US was the largest export market for German goods. The European country accounts for half of the deficit in US trade with Europe, which has already prompted criticism from Donald Trump’s advisers. The latter blame Berlin from deriving benefits from a weak euro (it is believed that Deutschemark would be stronger and would reduce the competitiveness of German exports). At the same time, the United States remains the main importers of capital - $ 478 billion for the whole 2016, including $ 557 billion in trade in goods for the first three quarters.

source: usnews.com