Shoppers across the eurozone went on a new year spending spree in January, raising hopes that the 19-member single currency area is bouncing back from the brink of a deflationary downturn.
Mario Draghi, president of the European Central Bank (ECB), announced in January he would start a €60bn ($43bn)-a-month programme of quantitative easing in a bid to prevent the eurozone sliding into deflation, with the money due to start flowing this month.
But with plunging petrol prices providing a boost to consumers’ spending power and the weakness of the euro against the dollar helping exporters, there are hopes a recovery may already be under way.
Retail sales across the eurozone expanded by 1.1% in January, according to official figures, beating investors’ forecasts by a wide margin. Compared with year earlier, sales were 3.7% higher.
A separate survey of eurozone businesses showed that output in the key services sector expanded strongly last month.
“There were clear signs of the eurozone economy reviving in February, with stronger inflows of new business and rising business confidence suggesting growth should continue to pick up in March,” said Chris Williamson, chief economist at data provider Markit.
Markit’s monthly purchasing managers index for services hit a seven-month high, of 53.7, well above the 50 mark that signals expansion.
The composite index, which covers both services and manufacturing, hit 53.3 in February, pointing to the fastest economic growth since July last year.
Williamson said Ireland and Spain were showing the strongest expansion; but all of the “big four” eurozone economies – Germany, France, Spain and Italy – were registering growth.
However, the breakdown of the official retail sales figures revealed sharp differences between countries. Consumers in bailed-out Portugal led the way with a 6.8% monthly rise in sales volumes; Germany saw a 2.9% increase in sales; Lithuania, Bulgaria and Ireland suffered declines.
Draghi is expected to announce the details of how it will carry out its €60bn-a-month bond-buying programme at a press conference after the ECB’s monthly policy meeting in Cyprus on Thursday.
Draghi will also reveal the ECB’s latest forecasts for inflation and GDP growth. QE could start as soon as next week.
The controversial policy, which has been openly opposed by the German Bundesbank president, Jens Weidmann, is aimed at underpinning confidence and boosting asset prices.
After the radical Greek government secured a four-month agreement to extend its bailout loan, companies may also feel more confident about investing.
Williamson said: “Concerns about ‘Grexit’ and contagion to other countries have eased, the weaker euro should help boost exports and, perhaps most importantly, the commencement of quantitative easing by the ECB should stimulate the economy as we move through the year.”
However, fears that Greece may run out of money were kept alive on Wednesday when the Spanish economy minister, Luis de Guindos, repeated his claim that Athens would eventually need a third emergency rescue.
“We have given ourselves these four months to one, see what the real situation is, to see how Greece has met conditions and to try and establish what happens next ... which is fundamentally a third rescue,” he told a conference in Barcelona. Eurozone finance ministers are due to meet next Monday, but a spokeswoman for the eurogroup chief, Jeroen Dijsselbloem, insisted that finance ministers were not discussing a third bailout.
One key impact of the announcement of QE has been to weaken the euro on foreign exchanges. In a separate report published on Wednesday, ratings agency Moody’s pointed to a number of sectors that it predicts will receive a boost from the cheaper currency.
“Continental automakers like BMW and Daimler with cheaper European cost bases and high non-European sales could see a benefit from the euro slide, while hotels and tourist companies enjoy more overseas visitors. On the other hand, airlines could bear the brunt with fewer people choosing to travel outside Europe,” said Anke Rindermann, Moody’s vice president and senior analyst.
