Euro zone economy registering surprisingly strong growth

On Thursday, data showed that Industries across the Euro zone turned up production in November and Germany ended the year with its strongest growth in 5 years, which indicates an economic shot that may be arriving earlier than expected this year.

The Euro zone industrial output rushed 1.5% on the month and 3.2% year-on-year as firms boosted their production before Christmas. Both figures were way better than expected. This materialized with a surprisingly large increase in Italian industrial production, also reported yesterday, and similarly numbers early this month from France. Meanwhile, the German statistics office estimated growth in the Euro zone around 0.5% for the fourth quarter which expanded by 1.9% in 2016.
Economists pointed that these figures added to the evidence that Euro zone gross domestic product will have picked up in the last quarter of last year. Euro zone GDP grew a modest 0.3% in second and third quarter of last year, after a 0.5% rise in the first quarter.
Euro zone consumer confidence also hit a 20-month high in December and has been rising for 4 consecutive months according to European Commission’s estimates.

The European Central Bank, however, remains cautious about this outlook as this improvement on the last quarter of the year may not carry over to 2017 since it brings with it an increase in prices. Jack Allen of Capital Economics said:
“We expect rising inflation to weigh on consumer spending growth, causing overall GDP growth to slow in 2017”. EU consumer inflation in December was 1.1%, the highest level since September 2013, as Oil prices are still going up. It remains under the roughly 2% target required by the ECB.
Moreover, the Euro zone industrial output data confirms that caution is still dominant among firms, as political uncertainty over the upcoming months restrains investments.

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