FRANKFURT (Reuters) - Economic recovery in the euro zone is gaining ground and some data point to robust momentum in the first quarter despite uncertainty over Brexit, China’s rebalancing and new U.S. policies clouding the outlook, the European Central Bank said on Thursday.
“Incoming data, notably survey results, have increased the Governing Council’s confidence that the ongoing economic expansion will continue to firm and broaden,” the ECB said in its regular economic bulletin. “Surveys point to a robust growth momentum in the first quarter of 2017.”
Global trade, a key contributor to growth, also seems to be picking up momentum and despite increasingly protectionist rhetoric from Washington world trade is expected to expand broadly in line with global activity, the ECB added.
The United States has recently backed away from a pledge for free and open trade, calling for a review of some trade agreements and proposing in import duty tax, arguing for “fair” trade.
Indeed, the ECB said that uncertainty remains elevated, particularly due to the lack of clarity regarding the new U.S. administration’s “America First” policies and their impact on the rest of the world.
But even as growth picks up, the ECB warned that the rise in inflation will be more subdued with oil futures implying a stable crude prices and suggesting only a “very limited” impact from energy prices on inflation.
Having fought ultra low inflation for years, the ECB remains concerned that the recent spike in price growth is only due to rising oil prices and thus temporary, requiring continued stimulus.
The bank noted that wage growth, a key condition for a rise in inflation, remains low by historic standards, suggesting ample slack in the economy and weak productivity growth.
“In contrast to energy inflation, the expected pick-up in (headline) inflation excluding energy and food is likely to be much more gradual,” the ECB said. “There are only weak signs of upward pipeline price pressures.”
Reporting by Balazs Koranyi, editing by Jeremy Gaunt