Once Lagging Euro Region Outstrips World on Wave of Liquidity

The euro-area economy is riding the biggest wave of liquidity since the birth of the single currency to its fastest expansion in four years.

The long-term laggard of global growth is for now even outpacing the U.S as it cashes in on ultra-loose monetary policy, weakness in the euro and oil prices, fading fiscal austerity, surging stocks and renewed bank lending. Barclays Plc reckons such forces make overall monetary and financial conditions the easiest since the euro began trading in 1999.

Credit for the revival, mere weeks after talk was rife of deflation, is due in part to European Central Bank President Mario Draghi’s successful navigation of German opposition to quantitative easing. As always, the risk is of slippage, with Greece the chief wild card as its clash with creditors throws doubt over its membership of the 19-nation bloc.

“I’m really optimistic,” said Gilles Moec, chief European economist at Bank of America Merrill Lynch and a former Bank of France official. “We’ve had a number of false starts in the European recovery, but this time the recovery has legs.”

Moec raised his 2015 euro-area growth forecast on Friday to 1.6 percent from 1.5 percent, and predicted 1.9 percent in 2016 after a string of data reinforced the reasons for optimism. The International Monetary Fund lifted its forecast last month, paving the way for the European Commission to revise up its outlook when it makes new predictions next week.

Deflation Averted

Consumer prices have ended a four-month run of declines, German unemployment continues to fall and Spain’s once crisis-addled economy grew the fastest in seven years in the first quarter. Economic confidence across the continent is near its highest since mid-2011.

So well has 2015 begun that the euro-area may have beaten the U.S. for the first time in four years. The region grew 0.4 percent in the first quarter from the previous three months, according to economists polled by Bloomberg, faster than the 0.1 percent estimated for the U.S.

Investors are tuning in. A survey of financial professionals by Bloomberg found them favoring Europe as the best place to put their money for the first time since at least 2009, displacing the U.S.

That raises the likelihood that the Stoxx Europe 600 Index will extend its 15 percent gain so far this year and the euro’s drop to dollar parity that some were predicting won’t happen.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.