France and Spain boost eurozone growth to 0.5%

Eurozone GDP growth reached 0.5 per cent in fourth quarter of 2016 helped by improved growth in France and resilient expansion in Spain, according to a Eurostat “flash” estimate.

France saw growth rise from 0.3 per cent in the previous quarter to 0.4 per cent, while Spain saw GDP growth stable at 0.7 per cent. In total, Spanish GDP grew 3.2 per cent in 2016.

Full year growth for 2016 sits at 1.7 per cent.

Unemployment also dipped to 9.6 per cent – its lowest since May 2009.

The data follows a sharp rise in inflation to 1.8 per cent for January.

However, IHS Global Insights chief economist for the UK and Europe Howard Archer says the ECB is unlikely to change tack anytime soon as core inflation (which excludes energy, food, alcohol, and tobacco) was stable at 0.9 per cent.

“While recent economic news points to improved growth, we suspect the Eurozone may find it difficult to sustain this momentum amid appreciable political uncertainties during 2017 and likely reduced consumer purchasing power due to higher inflation,” Archer says.

He forecasts GDP growth of 1.6 per cent this year and next.

Nathan Sweeney, senior investment manager, Architas, says political events this year could create volatility – and therefore opportunities – in European markets.

“It is not so long ago that the investment world was concerned about deflation in the Eurozone and negative bond yields were widely accepted. This is no longer the case.

Sweeney says overseas investors will be slow to reallocate to the region in the same way that the UK is only just starting to see inflows following the Brexit vote.

“The reality is allocators will be underweight Europe and this will take some time to shift, even with more positive numbers emerging.”