European growth exceeds the UK

The Eurozone grew by 0.6% in Q3 of 2017 which was above analysts’ expectations.

The annual growth rate has been 2.5% while European unemployment stands at 8.9% which is the lowest for nine years. European inflation however fell to 1.4% in October well below the 2% target set by the ECB. These figures are encouraging and show that the continents economy is growing and more people have work. The ECB will continue with ultra-low interest rates and their QE programme in order to get inflation rising again.

While there is degree of catching up in Europe’s GDP growth, the Eurozone economy once again grew faster than the UK showing a continuing period of growth divergence. The Eurozone growth was 0.7% in Q2 followed by 0.6% in Q3 while the UK achieved 0.4% and 0.3% in the same periods. When looked at on an annual basis this is a difference of 2.5% compared to 1.7% which in monetary terms is significant. As the UK is further down the recovery path, our inflation at 3.1% is ahead of Europe’s 1.45% prompting the BoE to raise interest rates by 0.25% in November.

The ECB intends to start to cut back on the level of bond purchasing that it conducts each month from January 2018. The current level of €60bn purchases will be reduced to €30bn. This policy, aimed at boosting inflation and employment, could come to an end by Q4 2018 as the need for such high bond purchases will have been reduced now that Europe is in a growth cycle.

Within Europe, there have been some growth successes such as the Greek economy returning to growth this year. Spain is also enjoying improving economic fortunes in both GDP and employment growth. The volatile condition of Catalonian politics could impact on this if Spanish bond yields spiked on a constitutional crisis and the country suffered higher borrowing costs.

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