Economy

Euro Zone GDP Positively Revised, ECB Maintains QE

Euro Zone GDP Positively Revised

Official data released on Thursday showed a robust growth rate in the Euro zone economy, while the European Central Bank held rates steady and kept doors open for more stimulus.

The Euro zone, with 19 European Union members using the same currency, exhibited a faster pace of economic growth acceleration than previously thought in the second quarter, expanded 2.3 percent on a year-on-year basis, and beat the 2.2 percent previous growth estimate.

The currency’s pace previously overtook the dollar in the first quarter, and then accelerated further in the three months to June.

The data, which was released by the European Union’s statistics agency, suggested that the acceleration started earlier than previously thought. The quarter to quarter estimate remained unaltered at 0.6 percent, while its estimate of growth in the third quarter of last year was revised from 0.4 percent to 0.5 percent.

This means that when it is compared to the same period a year earlier, the estimates show that the economy (the gross domestic product or GDP) was 2.3 percent larger. This is recorded as the fastest rate of growth since the first three months of 2011.

In an annualized basis, the Euro zone economy swelled by 2.6 percent in the second quarter, promoting a skyward trajectory from the 2.5 percent rate of growth given by Eurostat as its estimate in last month.

All this growth beats the European Central Bank’s expectations for this year. The central bank’s economists are believed to raise their growth predictions for 2017 and next year. If done, it will be the third consecutive revision of their growth projections.

Further optimistic news has been given by Eurostat as they revealed the details about the forces driving the Euro zone’s acceleration.

The upward drive is primarily caused by consumer spending and investment, with household consumption that went up to 0.5 percent in the second quarter from 0.4 percent.

From 0.4 percent, imports leapfrogged their growth rate to 0.9 percent. Government expenditure also catapulted from 0.2 percent to 0.5 percent.

As for investments, an expansion of 0.9 percent was done thanks to higher consumer confidence and demand.

Exports decelerated their growth from 1.3 percent to 1.1 percent due to the stronger euro, which is swelling 13 percent against the dollar this year.

ECB Holds Interest Rate Steady

The unforeseen strength of the Euro zone’s rehabilitation this year gave basis to rumors that the ECB would gradually reduce the stimulus it gives to the economy starting next year. It was expected that Mario Draghi, the president of the ECB, would announce the winding down of its EUR2.3-trillion stimulus program, which is also known as Quantitative Easing (QE).

However, the ECB did not change its benchmark interest rate, without giving any clarifications on the expected winding down of QE.

It held its interest rates at zero percent and said that more stimulus (QE) can still be given if necessary.

European Central Bank

“The Governing Council confirms that the net asset purchases, at the current monthly pace of 60 billion euros, are intended to run until the end of December 2017, or beyond, if necessary,” the ECB stated.

The euro experienced a slight drop against the dollar, trading at $1.1967 after the ECB announcement, but quickly came back on track to $1.1975 and still kept close to its high for the session.

The purposes of the QE scheme, which has run for two and a half years, are to cut borrowing costs, boost demand, and raise inflation. These are all aimed at extinguishing the threat of deflation.

Investors are still waiting for further information from ECB and Draghi as to what the bank plans for the stimulus and its economic projections.

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