“The eurozone has surprised recently as the global outperformer growing well above potential. Yesterday’s record print for the German IFO (Business Climate Index) suggests growth may be tracking around 3% in the second half of 2017.”
Andrea Iannelli, investment director, fixed income at Fidelity International, agreed: “The eurozone economy is much stronger today than it was in 2012. Arguably, the ECB has singlehandedly steered the eurozone out of a storm and into much calmer waters.”
To taper or not to taper?
“Looking ahead, however, there are still some clouds on the horizon, and the ECB should avoid letting go of the helm just yet,” he added.
Echoing the concerns of the IMF, Ianelli said: “The cyclical recovery that we have witnessed hides some underlying structural issues. The debt burden in peripheral countries remains extremely high, leaving them exposed to any spike in risk aversion that might appear in the months and years ahead. In the absence of inflation, debt sustainability will remain an issue, and policymakers cannot afford to lower their guard.”
Isaacs, however, noted that “the ECB is acutely aware that it is near the limits of what monetary policy can deliver. With real evidence that its efforts have helped set in motion a self-sustaining recovery it will no doubt be hoping for an easier ride over the coming five years.”