The 19-country Eurozone seems to be gaining momentum. The recovery is being helped mostly by low oil prices and the lower euro but it still cannot be compared to the US economic comeback. A number of recent economic reports suggest that the block’s economy seems to be picking up after a year of stagnation and low consumer spending. Retail sales, one of the clearest indicators of economic vitality, rose by 1.1 percent in January marking the biggest increase since May 2013. Like in most free-market economies, consumer spending is an important prerequisite for economic growth.
The fact that it is growing steadily suggests that consumers seem to be re-gaining confidence. Consumer spending has now been growing for four consecutive months for the first time since 2000 when it was first recorded. According to Howard Archer of IHS Global Insight, “this reinforces our belief that Eurozone growth will pick up markedly to 1.6 percent in 2015 as it benefits appreciably from very low oil prices, a much more competitive euro and substantial ECB stimulus”. Since the beginning of the crisis in 2008, consumer spending has been negatively influenced by high unemployment, slow wage growth, and a general feeling of a poor economic environment.
Although many economists predicted that deflation could have a negative impact on consumer spending, it has not been happening so far. It is generally believed that the sharp decline in fuel prices is the main driver of low inflation. A prolonged period of deflation can impede on economic growth as consumers delay spending expecting even cheaper products and investors delay investment due to falling profits. In addition to increased consumer spending, other reports showed that the February Eurozone growth rate was the fastest in seven months. Moreover, economic activity of the major Eurozone economies – Germany, France, Italy, and Spain – has also increased for the first time since April last year.
