A fter years in the emergency ward, the eurozone is showing signs of life. Indeed, it has shrugged off the trials and tribulations of 2016 – multiple terror attacks, the attempted coup in neighbouring Turkey, Donald Trump’s victory and above all the Brexit vote – with surprising vigour.
Flash estimates suggest that last year the currency bloc grew faster than the US for the first time since 2008, when Lehman Brothers collapsed and the American economy teetered on the brink of a depression. These snapshots are often revised as more data come in, but all the numbers now point towards a strengthening recovery.
Output grew 1.7%, backing up the 2% posted in 2015 and outpacing the US on 1.6%. Unemployment dropped to 9.6% in December, the lowest rate recorded since mid-2009. And inflation has ticked up to 1.8%, driven by more expensive items across the board but especially rising energy bills. As recently as May last year prices were falling, prompting fears the bloc was slipping into a Japanese-style deflationary trap.
The “data points to continuous strong momentum in the euro-area,” said Marc de-Muizon, an economist at Deutsche Bank. “We remain sceptical about the ability of the euro area to keep growing at a 2% annualised pace, but stronger external demand and confidence are upside factors.”
There remain sharp discrepancies across the 19-nation club. In Germany, the regional powerhouse, unemployment has dropped to a post-reunification low of 3.9%; in Greece, the laggard, it is a precipitous 23%. The signals from France and especially Spain are encouraging, but Italy remains an eyesore.
These imbalances pose a conundrum for the European Central Bank, which must set monetary policy for the bloc as a whole. Although inflation is now almost on target, it shows no sign of raising interest rates, a stance raising hackles in Germany, where prices are rising faster than elsewhere and savers feel short-changed.
There are plenty of other hazards. The UK will soon begin divorce proceedings, which are bound to be acrimonious. Greece is in a dire state. Mr. Trump has accused Germany of currency manipulation, pointing to rocky relations ahead. And a packed election schedule could throw up nasty surprises - especially in the Netherlands, France and Italy. The euro is yet to be discharged.