Eurozone: Current growth recovery warrants optimism for medium term? - Natixis

According to Patrick Artus, Research Analyst at Natixis, the euro zone’s rapid growth in the short term does not send a positive signal for the long term.

Key Quotes

“To determine whether the current growth recovery in the euro zone warrants optimism over the euro zone’s medium-term prospects, it is important to ask what accounts for the zone’s current growth:

• Foreign trade: the contribution of foreign trade to euro-zone growth is positive, which shows the role of the international environment;
• Household demand: but, beyond the short term, job creation is going to slow as the unemployment rate returns towards the very high level of the structural unemployment rate; this job creation is also primarily concentrated in unsophisticated services; real wages have already slowed due to the rise in oil prices;
• Corporate investment: but we do not see it contributing to any pronounced modernisation among euro-zone companies, or to an upturn in productivity.”

“The euro zone’s current decent growth therefore does not seem to result from a structural improvement in the euro-zone economy (it stems from the fall in inflation and from low-skilled job creation, and has not coincided with a rise up the value chain or with an improvement in competitiveness). Accordingly, the current growth in the currency area is probably not a leading indicator of stronger growth in the medium term.”