Eurozone’s GDP expected to grow

Rating agency Moody’s predicts that Eurozone’s GDP will grow by 2,1% this year and by 1,7% in 2018. According to report published on Tuesday, September 5, the euro zone’s real GDP likely reached 0,6% quarter – to – quarter in Q2, up from 0,5% in the Q1. The growth is mainly fueled by strong aggregate demand and relatively strong export – despite strengthening euro. According to Daniel Gros, Director of the Center for European Policy Studies [quoted after]’ “The Eurozone has been on a good path already for a year. We have now to acknowledge that austerity measures have, in a first phase, a negative impact on growth, but afterwards they pay a dividend, sometimes even a ‘double digit’ one.”

Germany stronger than France

According to Moody’s strong euro puts a thread to France’s trade balance. Since France’s domestic import relies heavily on imported goods, strong single currency may cause imports to balloon. Given the relatively weak productivity and employment growth numbers, the predicted France’s GDP will be hovering around 1,1% this year. The story is different for Germany where export – mainly in high value added sectors like motor vehicles and aircraft – is more immune to exchange rate shocks. Therefore, Germany’s trade surplus is deemed to be less deteriorated by the strengthening euro.

Single currency a safe haven?

The single currency has risen above 1,20 against dollar at the end of August which is the highest level in more than two years. It seems that Bank of Federal reserve will keep the interest rates unchanged so that economic growth is not hurt in the wake of the hurricane Harvey – which makes the dollar less attractive for traders seeking high growths. The dollar exchange rate is also negatively influenced by North Korean ballistic missile tests.

The single currency remains strong after this Thursday’s ECB meeting on which it was decided to keep the monetary policy unchanged. According to ECB’s chief Mario Draghi “the outlook for growth and inflation remains broadly unchanged”. “This autumn, we will decide on the calibration of our policy instruments beyond the end of the year” – he added.  The euro has soared 14% this year – strongest among major currencies.

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