Dutch Surge Aids Eurozone Recovery

By Paul HannonFeaturesDow Jones Newswires

The Dutch economy rode an export boom to help drive an acceleration in eurozone growth during the three months to June, a sign that the currency area's recovery is becoming more broad based and less reliant on Germany and Spain.

The strength of the eurozone economy during the first six months has come as a surprise to most economists, who had expected growth to slow in response to an anticipated rise in energy prices, and heightened levels of political uncertainty as voters in the Netherlands, France and Germany chose new governments.

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However, the rise in energy prices didn't last long, while polls in the Netherlands and France--in March and May respectively--have produced wins for pro-euro centrists and reduced the threat of a breakup of the currency area. German Chancellor Angela Merkel has a large lead in opinion polls ahead of next month's elections.

With Prime Minister Mark Rutte working to form a new government, the Dutch economy surged in the three months through June, recording its fastest expansion since the final three months of 2007. According to the Dutch statistics agency, gross domestic product--the broadest measure of the goods and services produced by an economy--was 1.5% higher than in the three months through March, and 3.3% up on the same period a year earlier. That was largely the result of a jump in exports, with overseas sales 11% higher in June than a year earlier.

As a result, the Dutch economy overtook Spain's as the fastest growing of the eurozone's five largest members. It had previously enjoyed steady if modest growth, expanding by 0.4% in the first quarter. The CPB Netherlands Bureau for Economic Policy Analysis Wednesday said it now expects the economy to grow by more than 3% in 2017, the first year in which it will have done so since the financial crisis.

"The Dutch economy is well on the rise," the CPB said in its new report on the economic outlook.

The eurozone's pickup was also supported by slightly stronger growth in Italy, which recorded a second straight quarter in which GDP rose by 0.4%. Compared with a year earlier, the Italian economy was 1.5% larger, the fastest rate of expansion since the first three months of 2011.

Spain and Germany were largely responsible for driving the eurozone's modest growth between the start of the recovery in mid-2013 and the end of last year. But the broadening of the recovery this year has contributed to its acceleration.

The European Union's statistics agency Wednesday raised its measure of eurozone economic growth during the second quarter to 2.5% annualized from its first estimate of 2.3%, bringing it closer to the 2.6% recorded by the U.S. during the same period. On a quarter-to-quarter basis, the economy grew by 0.6%, up from 0.5% in the three months through June.

The surprising strength of the eurozone economy has prompted economists to raise their forecasts for the year as a whole. According to Consensus Economics--which tracks forecasters--the average growth rate for this year projected by the 29 institutions it follows is now 2%, up from the 1.4% expected in December.

The eurozone's revival has come at an opportune time for the global economy, since U.S. activity has been slightly weaker than expected. It has also fueled expectations that the European Central Bank will start to wind down its purchases of government bonds from January. However, there are few signs that the pickup in growth has transformed the outlook for inflation, which is well below the ECB's target of just under 2%.

Write to Paul Hannon at paul.hannon@wsj.com


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August 16, 2017 05:14 ET (09:14 GMT)