(Repeats item that first ran on Sunday)
* Early 2017 euro zone data promises growth
* Sustainability is key
* Political risk and inflation are risks
* Euro zone economy graphic: tmsnrt.rs/2bkCt7Q
By Jeremy Gaunt
LONDON, Feb 26 Over the years, euro zone
economic growth has been a bit like the Sirens in Homer's
Odyssey: singing a song of promise, only to end up pulling you
onto the rocks. Will it be different this time?
The strong growth registered in numerous data releases and
surveys at the beginning of this year has surprised many.
One eye-opening example was the release of flash purchasing
managers indices for France, Germany and the euro zone on Feb
21. Of nine indexes, eight registered growth and six did so at a
higher level than any economist polled by Reuters had imagined.
Not surprisingly, economists and policy-makers are now
looking for firm proof that the euro zone's apparent rebound
this year is sustainable, as well as noting a variety of
potentially destructive economic and political hazards ahead.
There has not been, they say, a specific inflexion point at
which it can be said that the euro zone has recovered and is off
on a growth tear. Rather it has been a slow simmer.
"The euro zone has been recovering steadily for three years
now, helped by monetary policy stimulus, an end to fiscal
austerity and a healthier financial sector," said James McCann,
OECD economist at Standard Life Investments.
"(It's) a steady recovery which has been trundling on."
The numbers confirm this. The European Commission notes that
real GDP in the euro zone has grown for 15 consecutive quarters
- a sign of steady improvement.
But putting aside some of the latest data, it has been
steady rather than spectacular. Economic growth is still running
at only around 1.6 percent annually, and most forecasters - from
economists polled by Reuters to the Commission itself, reckon it
will be about the same this year.
So the question is whether the recent data has turned this
on its head. Even before considering whether Greece's debt
problems will come back to bite the euro zone, there are two
main strands: inflation and elections.
OF POLITICS AND INFLATION
While the repetition of positive January and February data
in the month ahead - for example, German industrial orders
soaring again - would fuel the euro zone takeoff story,
inflation may hold the key.
"The risk of disappointment is that higher headline
inflation decelerates real income growth and consumption," said
Paul Mortimer-Lee, global head of market economics at BNP
The preliminary reading of February euro zone inflation, to
be reported on Wednesday, is expected to come in at 2.0 percent
year-on-year, rising to the European Central Bank's target on
the back of monetary stimulus and economic growth.
While far from hyper, such a level has not been seen for
four years, and there has been a strong inverse path taken
between inflation and retail sales over the last five years.
In other words, rising prices can hurt consumer spending,
which in turn drives economies.
Unemployment during the financial crisis accounts for some
of the dive in retail sales seen on and off since 2008. But
joblessness, though improved, is still twice that of, say, the
So if euro zone inflation were to overshoot in the coming
year, it may well stifle the very growth that engendered it.
Economists, however, also see a growth killer in the bloc's
Many have long argued that the euro zone cannot compete as a
leading economy without substantial structural reform -
particularly in the number two and three economies after
"It comes down to France and Italy stepping up a gear," said
Florian Hense, European economist at Berenberg private bank.
But it is exactly in those two countries where politics is
threatening to delay or derail the type of pro-growth structural
reforms advocated by the European Central Bank and many private
In Italy, the chances of an election this year have
diminished, but the political turmoil surrounding the
resignation of prime minister Matteo Renzi is likely to set back
major reforms until an election takes place.
It is France, however, that is seen providing the biggest
risk. Two of the top three candidates are viewed as economic
reformists, but they are up against Marine Le Pen, the far-right
National Front candidate whose pledge to put France's EU
membership to a referendum could de-stabilise the region's
economy for years.
Le Pen is not supposed to win, according to polls. But
neither was U.S. President Donald Trump or those in Britain
wanting to leave the Europe Union.
"If a rising France joins a still strong Germany at the core
of Europe, the economic and political outlook for the euro zone
as a whole could improve considerably," Berenberg economists
"(But) a President Le Pen would spell the end of reform
hopes for France and the EU for the next five years."
(Editing by Mark John)