Eurozone gets strong economic report card as ECB ponders exit

Madrid - Two of the biggest eurozone economies extended their solid growth runs and confidence in the 19-nation bloc unexpectedly improved, underpinning the momentum the European Central Bank is banking on to boost inflation.

Economic sentiment rose to a decade-high of 111.2 in July amid increased optimism in services and construction, according to the European Commission. Confidence in industry stayed at the highest in more than six years.

The report came after data showed France is enjoying its strongest continuous expansion since 2011 with output - driven by exports and investment - increasing 0.5% in the April-June period. Business sentiment in the eurozone’s second-largest economy has risen after Emmanuel Macron was elected president on an agenda that promises to make the nation more competitive.

In Spain, the region’s number four, gross domestic product expanded 0.9%, the fastest since 2015. The Austrian economy also grew 0.9% in the second quarter, its best performance in more than six years.

Robust growth

The data buttress the European Central Bank’s latest assessment of the 19-nation economy, which President Mario Draghi described as solid and broad.

Consumer and business confidence is rising, and companies such as France’s Remy Cointreau SA and Germany’s Adidas are benefiting from an upswing in demand.

READ: Adidas jumps as sneaker, sportswear sales drive profit upgrade

The cognac maker reported an 8% increase in quarterly sales that beat analysts’ estimates, while the sporting-goods company said 2017 will be even better than it previously anticipated.

“The current positive cyclical momentum increases the chances of a stronger than expected economic upswing,” Draghi argued after the Governing Council’s July 19-20 meeting, adding that downside risks are mostly confined to global factors.

With the economy powering ahead, policy makers are hopeful that falling unemployment and a closing output gap will finally fuel a sustainable inflation pickup, allowing them to unwind some of the unprecedented stimulus they deployed in the past three years.

A gauge for capacity utilisation in eurozone manufacturing rose and selling-price expectations increased in all sectors, according to the Commission report.

price pressures

Draghi has put a discussion about the future path of quantitative easing on the agenda for the autumn, and investors are hanging on to every word for clues about timing and scope of a reduction of asset purchases that are currently scheduled to run through December.

The International Monetary Fund has urged the ECB to keep its stance “firmly accommodative” until inflation has sustainably entered on a path toward its goal. Consumer prices increased an annual 1.3% in June and Draghi said the rate is likely to hover around that level in the coming months. Eurostat will report July data on Monday.

“The recovery is broadening across countries and sectors, and we expect this to continue. The picture has changed significantly from a year ago - and that’s good news for the ECB,” said Florian Hense, European economist at Berenberg Bank in London. “Having said that, I doubt it serves to materially change the scenario for Draghi or the ECB.”

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