Signs of the Eurozone economy responding to the ECB’s aggressive (if belated) monetary easing continue to mount, making a proper recovery this year all the more likely–if it can only avoid shooting itself in the foot in Greece.
Closely-watched indicators published Thursday indicated a broad-based improvement across the 19-country currency union at the start of the year, with a particularly strong showing in Germany, the region’s economic motor.
The Eurozone’s largest economy said joblessness fell to a 24-year low in Feburary, after a bigger-than-expected 20,000 drop in seasonally-adjusted unemployment. Employment hit another record high, and the number of vacancies was up over 12% from a year ago.
Germany has been posting stellar labor market numbers for years now, even through the recession that followed the financial crisis, but–as in the U.S.–other demand-related data such as wages and retail sales have lagged disappointingly behind the jobless numbers. The failure of Germans to spend more has in turn been a major drag on the wider Eurozone economy.
However, there are signs of that starting to change. Earlier this week the IG Metall engineering union, which has traditionally been the bellwether for nationwide wage settlements, got its biggest pay rise in years, a 3.4% increase over 12 months. Carsten Brzeski, chief economist for ING in Germany, reckons that the country as a whole should post 3% wage growth this year, against a backdrop of ultra-low inflation.
Just as telling was a survey from market research firm GfK showing consumer confidence at its highest since 2001. The “willingness to save” component of GfK’s indicator fell to a new record low, while the “willingness to spend” component was only ever as high nine years ago (as people rushed to beat an increase in value-added tax).
“This means the ECB’s policy is working. Even the biggest savers in the Eurozone have stopped saving and started spending,” Brzeski said.
However, it still isn’t all roses, obviously. Brzeski pointed out that investment is still weak, despite the fact that the economy is swimming in central bank-driven liquidity. Uncertainties over the Ukraine crisis and Greece are still holding businesses back, he noted.
That was also reflected in ECB data Thursday showing that, while mortgage lending is picking up strongly, loans to business continue to lag. Even so, at -0.1% year-on-year, private-sector credit is stronger than at any time since April 2012.