When compared on a YoY basis the GDP growth posted an increase of 0.6% during Q1 in the Euro Area. In addition, as per Eurostat, the seasonally adjusted retail trade volume showed an appreciation. Compared to April 2017 the adjusted sales index grew by 2.5% in Euro Area. Along with these recorded readings, Eurozone economic growth continued to run at the quickest pace over the last 6 years ending May as per Eurozone PMI Composite Output Index with a very healthy reading of 56.8. The latest output expansion supported by strong incoming business, which is one of the steepest rises in the last six years. PMI’s exhibited optimism on a one-year outlook, a reading that has risen to the highest level ever since the data for this series was first collected during July 2012. This data also shows congruency to the Sentix Economic Index. The situation index recorded the highest upturn since 2008, based primarily on hard macroeconomic indicators, and puts Eurozone progress on a positive bearing, as assessment is not based on “volatile expectations.” This index is the highest since post-crisis level. Unemployment, that has been a plague of the Eurozone, as indicative of high unemployment rate in France and Spain, has witnessed signs of abatement, ever so slightly.
While continuingly improving economic conditions would allow for a move away from current negative interest rate regime, but this scenario appears a distant possibility as per recently chaired Monetary Policy decision-making meeting of ECB held in Tallinn. Here the participants unequivocally decided that the key ECB interest rates would continue to remain at the existent level, well past the horizon of net asset purchases. Thus, as per ECB’s governing council, the current asset purchases program of Euro 60 billion will at least run during the end of December and probably much further down, with inflation, employment rate and the GDP growth rate as the correct gauge for monitoring progress and growth. The principal payment of the maturing securities, under the asset-purchasing program, will continue to be reinvested, and if the economic situation becomes less favorable, then scope in terms of size and duration of the program is extendable.
While the ECB remains highly circumspect of the development of improving macroeconomic indicators, it would be hasty to think that the Euro can make a healthy rebound in the currency markets on its own strength. We can expect a reasonably long period of consolidation to follow, for example, against the US dollar, before cracks in the counterpart economies and prolonged consolidation in the Eurozone, allows the Euro to propel like a springboard. Nevertheless, as the ECB makes its views clear on its expansive monetary policy, a situation helping the Euro can only come about with some sort of normalization in the interest rates. It is only in the long-term horizon, possibly 2017 Q4 or 2018 Q1 when tangible readjustments in the currency markets will allow for a re-equilibration of currencies, but that too in a non-negative interest rate environment.