Here comes the euro zone growth data

Sun Feb 9, 2014 5:59pm EST
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By Jeremy Gaunt

LONDON (Reuters) - The euro zone and its constituent parts will report fourth quarter economic growth numbers at the end of the week, offering policy makers at the European Central Bank a needed snapshot of the bloc's underlying strength.

Recent evidence has been mixed. There has been general improvement but a growing disparity between Germany and France, the currency union's largest economies.

Reuters polls suggest euro zone GDP will come in at 0.2 percent quarter on quarter for a year-on-year increase of just 0.4 percent. Germany's projected 0.3 percent quarterly rise, however, would translate to a relatively strong 1.3 percent for the year.

"The euro zone's economic outlook is slowly improving with even the likes of Greece showing signs that the worst is over," Northern Trust wrote in a note. "However, Europe's economic fundamentals are fragile, with deep divisions in performance among nations."

The ECB sat on its hands last week but gave a fairly clear steer that action could be taken next month if new internal forecasts show a further deterioration in inflation - falling so low as to trigger some concerns about deflation - and growth.

Bank President Mario Draghi pointedly flagged the Q4 gross domestic product data as crucial to the bank's thinking.

But what to do? A small interest rate cut from 0.25 percent to somewhere just above zero is hardly going to be a game changer and the ECB has already said it won't prime banks with long-term cheap money again unless they commit to lend into the real economy.

Bank stress tests looming to check on the stability of the financial system. Those same banks are also being told to deleverage and build up capital.   Continued...

The headquarters of the European Central Bank (ECB) are pictured in Frankfurt June 6, 2013. REUTERS/Ralph Orlowski