It was only a short while ago that bad news from the euro zone seemed to be hitting the headlines almost every day. However, things have been a bit quieter over the last little while – and the truth is that things are looking a bit rosier in the single currency bloc. In fact, by some estimates, the overall growth rate in the euro zone in Q1 2015 was 0.5% – a stronger performance than either the US or the UK. That’s an encouraging sign for the legislators and bureaucrats in Brussels.
Spain starts to recover
Spain has been one of the brightest spots over the last few months. Its economy grew by 0.9% in Q1, well above the average in the euro zone. In fact, there are those that think growth in Spain could edge up close to Ireland’s current growth rate – 5% per year – making it one of the best performing economies in Europe. However, the growth doesn’t seem to be translating into improving employment conditions. Unemployment has only fallen from 25.1% to 23% over the last 12 months – raising worries of a jobless recovery.
Unemployment still an issue across the euro zone
In fact, Spain is not alone in struggling with unemployment in Europe. Overall, the EU unemployment rate was 9.8% in March 2015 – only a slight decline from 10.4% in March 2014. Portugal is among the worst sufferers, with unemployment staying stubbornly high at 13.5%. However, they’re not alone. Italy’s unemployment rate has shot up to 13% in the last 12 months, and France stands at 10.6%. One of the brightest spots is Ireland, which has seen its unemployment dropped from 12% to 9.8% over the last year.
Deflation worries starting to recede
Prices in the euro zone have been falling since December 2014, but April brought a welcome relief as the inflation rate came back up to 0%. Negative inflation was a major worry, since it could have led to slowing economic growth as consumers held back on purchases in the expectation that prices would come down further. Now, although inflation is relatively flat, there’s room for investors and economists to cheer as the fall in energy prices is primarily what is holding overall inflation in check. In fact, the European Central Bank recently said that the prospects for inflation in the longer term had recovered. Simply put, that’s good news.
Growth prospects mixed
Germany continues to perform well economically, and other countries such as the Czech Republic, Hungary and Lithuania are also doing moderately well. However, austerity is placing a major drag on a number of euro zone members, although some are suffering more than others. Greece is still a basket case, but perhaps more worryingly, both Italy and France continued to be weighed down by spending cuts largely driven out of Brussels. This is enough to dampen prospects for these two countries for the foreseeable future – growth in France and Spain is likely to stay at or around zero for many years to come.