2017-05-11 07:23:50
But first-quarter figures probably overstate the gap between the two economies
HE appeal of GDP is that it offers, or seems to, a summary statistic of how
well an economy is doing. On that basis, the euro-area economy is in fine
fettle; indeed, it is improving at a faster rate than America s. Figures
released on May 3rd show that GDP in the currency zone rose by 0.5% in the
first quarter of 2017, an annualised rate of around 2%. That is quite a bit
faster than the annualised 0.7% rate reported for America s GDP.
These figures probably overstate the gap between the two economies. In recent
years, first-quarter estimates of GDP growth in America have later been revised
upwards substantially. Still, the euro-zone economy is clearly picking up
speed, even as America s goes through a soft spot. A jump in car sales in March
saw Europe as a whole overtake America as the world s second-largest market
(behind China). Euro-zone manufacturing grew at its fastest pace for six years
in April, according to the purchasing managers index, a closely watched gauge
of economic activity. The corresponding index for America fell.
The good news is not confined to manufacturers. The European Commission s
economic-sentiment index, based on surveys of service industries,
manufacturers, builders and consumers in the euro zone, rose to its highest
level for a decade in April. The bloc s extra pep is in large part because its
recovery from recession is at a much earlier stage than America s. There is
more pent-up consumer demand to accommodate and more spare capacity in
businesses to meet it. There is a lot of catching up to do. The unemployment
rate is 9.5% compared with 4.5% in America.
Differences in monetary policy in Europe and America reflect the different
stages of recovery. The Federal Reserve has started (slowly) to raise interest
rates. In contrast, the European Central Bank (ECB) has kept its foot to the
floor. At the conclusion of its monthly monetary-policy meeting on April 27th,
the ECB kept its main interest rate at zero and the rate it pays on bank
reserves at -0.4%. It also left unaltered the pace at which the ECB is
purchasing bonds, 60bn ($66bn) a month until at least the end of the year.
Mario Draghi, the ECB s boss, did not give any hint that policy might be
tightened soon. Although he acknowledged that risks of economic faltering had
further diminished , Mr Draghi insisted that underlying inflation in the euro
zone was still unduly low.
He still has much to fret about, including China s management of its debt
mountain and Donald Trump s protectionist threats. Elections in Europe may
throw up an obstacle to growth, if not in France than perhaps in Mr Draghi s
native Italy. And despite an agreement reached this week between the Greek
government and its creditors on reforms it must undertake, that saga will
continue to haunt the euro zone. But, at the very least, amid these anxieties,
the economy is gaining strength.
Correction (May 3rd): A previous version of this piece said that the euro-zone
unemployment rate was 9.4% and America's was 4.7%. In fact the figures are 9.5%
and 4.5%. This has been amended.