This post is by Brian Blackstone
from Real Time Economics
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WASHINGTON—The European economy is poised to contribute to the global economic recovery after years of languishing through stagnation and recession, Austria’s central bank Governor Ewald Nowotny signaled in an interview, as the region reaps the benefit of lower oil prices, a weaker exchange rate and stepped up investment.
“There clearly is a feeling of improvement particularly for industrial countries,” Mr. Nowotny said in an interview with The Wall Street Journal during meetings of the International Monetary Fund. “Europe has the potential to be a growth engine.”
The comments by Mr. Nowotny, who is a member of the European Central Bank’s governing council, underscore the upbeat message conveyed by ECB officials during the weekend meetings of global finance leaders.
“The economic situation and the short-term outlook for the euro area are currently brighter than they have been for several years,” ECB President Mario Draghi said Friday.
The eurozone’s gross domestic product expanded by 0.3% on a quarterly basis, or around 1.4% annualized, during the fourth quarter, and is expected by economists to have expanded at a stepped-up pace last quarter. In March, the ECB raised its GDP forecasts for this year and next and projected 2.1% growth in 2017, the first time in a decade that the ECB forecasted growth above 2%.
The IMF also raised its GDP forecasts for the eurozone, though it isn’t as optimistic as the ECB.
Having double-barreled growth from the U.S. and eurozone—the world’s two largest economies—would give a significant boost to the global economy and offset weaker growth in China and deeper problems in Russia and Brazil. The U.S. and eurozone combined for 40% of global GDP in 2014, according to IMF data. Yet these economies haven’t posted growth above 2.5% at the same time since 2006, and Europe last year barely escaped its third recession in six years.
“The U.S. has been a growth engine. Europe up until now has not been a growth engine,” Mr. Nowotny said.
The eurozone’s outlook is by no means robust. Given the positive boost from low oil prices, a weaker exchange rate and the ECB’s massive, €60 billion ($64.84 billion) a month bond-buying program that will run at least until September 2016, growth in the 1.5% to 2% range seems subdued. In addition, after years stagnation and recession, the eurozone should have a lot more pent-up business and consumer demand.
And there have been false dawns in the past. The eurozone posted solid growth in 2010 only to fizzle as the debt crisis that started in Greece swept through Portugal and Ireland and threatened Spain and Italy. The financial calm brought on by Mr. Draghi’s famous “whatever it takes” pledge in July 2012 to save the euro failed to generate a recovery as France and Italy stayed mired in slumps. The Ukraine crisis and tensions with Russia temporarily knocked Germany off track last summer.
Mr. Draghi insisted that this time is different. Unlike past attempts at recovery, both Continue reading “Eurozone Economy Showing Clear Signs of Improvement, Says ECB’s Nowotny”