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Eurozone Bounces Back as Growth Beats US, Britain – But Is It Sustainable?

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, May 18, 2017.
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After years of stagnation and high unemployment, the eurozone countries appear to be bouncing back with growth in the shared currency bloc, soaring higher than in the United States and Britain.

The eurozone grew at an annual rate of 1.7 percent during the first three months of 2017, while the bloc’s trade surplus doubled in March from the previous month. Unemployment is falling, albeit still stubbornly high at 9.6 percent.

“For a change, Europe is leading this upswing. It’s partly because of the connection between Europe and China, demand from China. But at the same time, we have also some domestic factors which are positive: there is a genuine improvement in domestic demand, particularly consumption. So the recovery is broad-based, and is more sustainable than in the past,” said analyst Lorenzo Codogno of LC Macro Advisors, also a visiting professor at the London School of Economics.

Some of the economies that suffered most in the 2008 debt crisis are bouncing back strongest — the so-called PIGS. Portugal hit a 10-year high with 2.8 percent year-on-year growth. Spain’s economy is forecast to grow 2.7 percent in 2017, and passed a crucial milestone last month as its GDP exceeded pre-2008 crisis levels.

“We’re seeing a cyclical recovery because we finally had the European Central Bank operating like a normal central bank and doing quantitative easing,” says analyst John Springford of the Center for European Reform.

With inflation in the eurozone hitting the central bank’s target of 1.9 percent, many economists expect the quantitative easing program to keep interest rates low to be wound down later this year. There are fears, however, that turning off the money could hurt the eurozone’s poorest performers.

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