News Analysis: Reduced political uncertainty escorts economic growth of eurozone major economies

Source: Xinhua| 2017-08-04 14:00:29|Editor: Xiang Bo
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by Xinhua writers Zhu Sheng, Deng Qian, Qiao Jihong

BERLIN, Aug. 3 (Xinhua) -- Economy in the eurozone and the 28 members of the EU (including Britain), or the EU28, seems to experience a recovery in the second quarter of this year, statistics and surveys from European think tanks and institutes have shown.

Strong economic momentum is seen especially in Germany and France in the second quarter, overtaking Britain for the second time this year.

The governor of the Bank of England has warned on Thursday that uncertainty over Brexit is already weighing on the economy.


A survey presented on Thursday by the Munich-based Ifo Institute for Economic Research shows that the eurozone continues to enjoy strong economic momentum.

"The strong growth (experienced in the eurozone) should continue into the second half of 2017," Ifo President Clemens Fuest said.

The gross domestic product (GDP) growth in the eurozone was 0.6 percent for the second quarter of 2017, around twice the rate recorded in Britain.

Ifo's survey results indicate both a more favorable view of the last six months as well as greater confidence looking towards the second half of the year.

Germany, France, Italy and Spain, the eurozone's four major economies, all posted improvements in terms of the assessment of the current situation as well as future expectations.

Meanwhile, the EU's statistics office Eurostat said earlier this week that the European economy is accelerating at its best pace in five years as the GDP in the second quarter grew by 0.6 percent over the previous quarter in both the eurozone and the EU28.

Compared with the first quarter, the seasonally adjusted GDP rose by 0.6 percent in the eurozone and the EU28 in the second quarter of 2017, said the report.

On a year-on-year basis, the seasonally adjusted GDP rose by 2.2 percent in the EU28 in the second quarter, said the EU's statistics office.


Political risk has been an important uncertainty in the economic growth of the euro area in recent years. But after the election in France and the Netherlands, European leaders finally heaved a big sigh of relief in the midst of a populism tornado swiping the continent.

Although Germany is still about to hold the parliamentary election in September, the political uncertainty is relatively low. The German economy is growing steadily.

"Growth should be helped by reduced political uncertainty, assuming no major shocks occur during 2017," said Raj Badiani of IHS Global Insight.

Thanks to a strong domestic and foreign demand for German industry products and an active manufacturing industry, the German economy is expected to grow at a similar pace in the second quarter like in the previous quarter with a growth of 0.6 percent, German central bank Bundesbank said in a monthly report.

According to the central bank, stable labor market, increasing income and people's more willingness to consume also contribute to the growth of economy.

The German Federal Ministry of Finance also stated in a monthly report that all economic indicators show that the German economy is on the upswing path, with increasing industrial output and better business confidence.

The final results of the second quarter is about to be released in the middle of this month.

A latest survey of Ifo Business Climate Index, considered the most important barometer for the German economy, also showed that the confidence of German companies has soared to a new record level.

"The German economy is firing on all cylinders," Ifo president Clemens Fuest commented.

Ifo expects 1.8 percent GDP growth instead of the previously forecast 1.5 percent in Germany for 2017. And it also raised its growth forecast for the coming year by 0.2 percent point to 2.0 percent.

France, another big economy in Europe, has witnessed a growth of 0.5 percent in the second quarter, according to data released by the French national statistics institute Insee.

For the whole year of 2017, Insee expects French GDP to grow by 1.4 percent, hardly below government target of 1.5 percent.


Amid the prevailing optimism, some analysts however stay prudent on the future growth of the European economy.

Eurozone political uncertainties have been diluted, but have not disappeared, Badiani said, warning that the Brexit vote could further damage Eurozone activity in 2017 and 2018.

Mark Carney, governor of the Bank of England, has warned that uncertainty over Brexit is already weighing on the economy. His comments came as the bank voted to hold rates and cut growth forecasts.

The bank edged this year's growth forecast down to 1.7 percent from its previous forecast of 1.9 percent made in May. It also cut its forecast for 2018 from 1.7 percent to 1.6 percent.

According to Carney, business investment was slower than it would have been expected to be because of Brexit.

"It's evident in our discussions across the country with businesses," he said, adding "that uncertainties about the eventual relationship are weighing on the decisions of some businesses."

The UK economy will expand more slowly in 2017 than previously predicted, according to the International Monetary Fund (IMF).

It said "weaker-than-expected activity" in the first three months of the year meant Britain would grow by 1.7 percent, compared with an earlier 2 percent forecast.

The IMF's chief economist, Maurice Obstfeld, told the BBC that the organization was watching closely the impact of Brexit on Britain's future economic health.

"We have long predicted that Brexit would have some negative long-term effects, but in the case of this year's forecast (downgrade) we are basing it purely on the observation of data for the first part of this year which has been weaker than expected," Obstfeld said.

According to the Office for National Statistics, Britain's GDP was estimated to have increased by 0.3 percent in the second quarter of 2017.