2018: the great return of the Euro.
There is something going on in the eurozone that can not leave me “indifferent”. It had been criticized for the general evolution of its economy between 2013 and 2016, where economic growth was stagnant. Later there was the debacle of the economies of the club-Med (Greece, Portugal, Italy Spain). If the area survived it was because of the resilience of countries like Germany, Austria. In the same line, I published in 2016 an article on the economic recovery in Spain, where I had foreseen a certain economic recovery.
The latest publications of the European central bank of the euro zone seem to suggest a new era for the euro zone.
Its economy grew by 2.6% year-on-year in the third quarter of 2017. This is above the preliminary estimate of 2.5%. moreover, This is by the fastest rate of expansion since the first quarter of 2011.
This rebound is mainly driven by household consumption, fixed investment and exports. When these three components are at the base of an economic recovery, this is very good news. Why? Household consumption and fixed investments are the driving force behind domestic demand. As for exports, they represent an increase in demand for European products.
At the individual level, there is something new: GDP growth has accelerated in Germany, France and Italy. France and Italy join Germany to propel
the economy of the area. As for Italy, we can probably say: “when it is fine, as the euro area.”
Another good news, is the declining trend in the unemployment rate. This rate fell to 8.7% in November 2017 against 8.8% the previous month, which corresponds to market expectations. This is the lowest unemployment rate since January 2009. A sad note, however, comes from the youth unemployment rate. It remains high in the euro zone even though it is trending downward. Italy holds 32%, far from its lowest rate of 18.4%. Spain, which has a remarkable GDP growth rate (8%), is unable to reduce its youth unemployment rate, which remains at around 37.9%.
The good health of the Euro area is also reflected in its nominal exchange rate against the US dollar. The Euro has surpassed the value of 1.20 dollars. The last time the euro touched this bar was in 2015. At the latest news the euro knows a 14% appreciation against the greenback. Speculators seem to have found in the euro a safe haven against a falling dollar and a dying sterling.
Christopher Peel, a strategist at Tavistock Investments, told CNBC’s Squawk Box.
“Nobody wants the pound and nobody wants the dollar.” Indiretement “Everyone wants the euro”. This is the reason why its value has increased: simple law of supply and demand.
Given the figures of the last quarter of 2017, the euro zone is doing well: low inflation rate-unemployment rate down- good performance of its currency and especially a return of investor confidence. 2018 will probably be the year of the euro.
Mounou Konan Global Economics Consulting.