Euro Area GDP Jumps 2.7% in Q4, Keeping Pace With US

Eurostat reported that euro area gross domestic product (GDP) rose 2.7% in the fourth quarter, compared to the same quarter in 2016. That means the growth of the once deeply recession-plagued economy has caught up to the U.S. expansion rate.

In specific, Eurostat reported:

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.7% in the euro area and by 2.6% in the EU28 in the fourth quarter of 2017, after +2.8% in both zones in the previous quarter. Over the whole year 2017, GDP grew by 2.5% in both zones.

The 19 euro area nations include Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland. The European Union (EU28) includes Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and the United Kingdom

Earlier in the week, the U.S. Department of Commerce reported that U.S. GDP was up 2.6% in the final quarter of 2016.

The recovery in the euro area comes after the near default on sovereign debt by several nations during the Great Recession, including Greece and Spain. There was concern that a major default could bring down the financial system in the euro area, which could spread to similar catastrophes in large nations outside the region.

The euro area recovery has been led by the largest and strongest economy in the area: Germany. Its unemployment is at historic lows, while its GDP growth has outpaced all but several small nations in the region.

The euro area faces the same challenges to growth in 2018 that the United States does. Central banks cannot lower rates any further if economies slow. While employment has improved, wages largely have not. Rising inflation and bond yields could undermine both consumer spending and business lending.

For the time being, however, the euro area has recovered completely from the dark periods that reached troughs seven years ago.