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Eurozone GDP Jumps Along With Trade Surplus

Economic data out of the Eurozone continues to surprise to the upside with latest figures revealed over the week showed that the 19-member eurozone’s trade surplus jumped alongside a pick-up in the region’s economic activity.

Official data released last Tuesday by the European Union’s Statistics agency, Eurostat showed that the region’s combined gross domestic product (GDP) rose 0.5% in the quarter ending March 2017 from the previous quarter. On a year over year basis, the GDP rose 1.7%.

EU28, euro area and the United States GDP growth rates % change from previous quarter.

Exports also rose strongly leaving the region with a trade surplus which was the widest since 1999, when the common currency was launched.

Despite the cheer amid recent signals that the economic recovery in the eurozone was now firmly entrenched in growth, the data also raised concerns on the possible reactions from the U.S. administration, which has previously accused nations such as Germany for benefiting from a weaker exchange rate.

Eurozone exports rise to the highest level since 1999

Data from the Eurostat showed that export of goods from the eurozone was at €202.3 billion in the month ending March 2017. This was about 13% increase from the same month a year before. Imports to the eurozone also climbed steadily but were significantly lower compared to the exports.

The trade surplus in the eurozone rose to €30.9 billion in March 2017.

Among the €202.3 billion in exports, data showed that the 28-member European Union exported €30.6 billion in goods to the U.S. more than the imports. It was an increase from €23.6 billion that was registered the year before.

While concerns remain on the possible implications of the trade surplus figures and the reaction from the U.S. officials, ECB members continue to maintain that the central bank’s policies did not have much effect on the euro’s exchange rate.

ECB’s governing council member, Philip Lane said in a speech last Friday that the central bank’s policies had a direct effect on improving the financial conditions in the euro area and that the policies were not aimed at deliberately influencing the exchange rate.

The latest figures in the GDP and exports come just a week after the Eurostat published the latest Spring Forecasts, where it upgraded growth forecasts for 2017 and 2018. The steady gains made so far this year was underpinned the confidence in the economic recovery of the region.

Growth is expected to rise 1.7% this year, slightly higher than 1.6% that was projected in the previous quarterly report.

The pace of recovery also managed to hold steady despite economists’ view that higher energy prices would sap the consumer spending while also the political headwinds would keep recovery tepid.

The overall upbeat mood in the region has, however, put pressure on policy makers to cut back on the bond purchase program. It was only a week before that ECB President Mario Draghi was seen defending the central bank’s policies to the Dutch lawmakers, who along with their German counterparts have increased pressure on the European Central Bank to reduce its balance sheet.

Despite the positive data, officials are however cautious noting that growth is yet to be confirmed all-around. Regional data suggests pockets of weakness such as Italy’s economy which lagged the rest of the Eurozone. GDP growth was recorded at just 0.2% in Italy, over the first quarter.

The European banking sector is also another factor that could be an obstacle for policy makers while normalizing interest rates. This was something that was also highlighted by the EU Commission’s spring report, citing that banking sector as one of the risks to the region.

Italy continues to remain at risk as the regional lenders continue to struggle with bad debt. Although the nation embarked on emergency measures just last year, the cracks remain which could pose systemic risks to the rest of the eurozone banking sector.

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