Rapid growth in the Euro Area, troubles in Spain and the United Kingdom takes down

The economic prospects in the Euro Area are clearly on the upside in September. The synthetic index which is a weighted average of the manufacturing and services indices is at its highest since April 2011. This suggests a rapid growth figure for the second part of 2017.
The manufacturing index is at its highest since February 2011 and the index for services is close to top levels seen at he beginning of the year.
Growth and employment are on the upside. It’s time for the Euro Area to create conditions for a long term sustained growth strategy with structural reforms locally and for the European institutions
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The graph compares the composite indices for the 4 major countries of the Euro Area plus the United Kingdom
The French economic momentum is now close and in phase with what is seen in Germany pushing the Euro Area dynamics on the upside. Spain remains a major contributor. It’s hard for Italy to follow the other 3 notably in the service sector.
The question of Spain is important: it has been a major contributor to the EA growth since 2014 but internal troubles after the referendum in Catalonia could create a less homogeneous trend in Spain and could damage the EA prospects. For the moment the uncertainty remains high.
The United Kingdom does not take advantage of the contagion that may come from the Euro Area. We see that since mid-2017 there is a divergence between the Euro Area and the UK. That’s Brexit uncertainty.

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Political watershed at the heart of Eurozone growth

The euro area is looking like a haven of stability these days. The election of Emmanuel Macron and his strong relationship with Angela Merkel have driven expectations that the economy will get back to more robust growth and that the political arena will take the steps required to embark on reforms that will maintain stability in the long term.

This watershed is remarkable as barely six months ago, the euro area looked like it was on its last legs. The expected surge in populism during the various different elections was set to hamper European integration and set off a downward spiral of lessening cooperative and greater antagonism.

Yet as July gets off to a start, we can observe that this is far from the reality and that European electors did not follow the path chosen by the US and the UK. Continue reading