Personal spending still main driver of economy in euro zone

There is room for increasing personal spending in the euro zone, which would probably lead to stronger GDP growth despite increasingly unfavourable trends, European central bank (ECB) reported in their latest publication.

GDP growth in the euro zone has slowed down significantly in the last two quarters, fuelling fears that the five-year period of extreme growth may be coming to an early end.

The slowing down is due exclusively to external factors, ECB said, adding that domestic demand is still strong, and new jobs are still opening.

“Personal spending is still the main driver of economy, but there is room for additional growth,” ECB said. “The labour market is still recovering, and consumer trust is still high, so spending should continue growing,” they added.

Recovery in personal spending has been slow so far, especially in lower-income households, where spending has still not reached the levels from before the 2008 financial crisis.

“Losses caused by the financial crisis in 2008 have not been recouped everywhere. Personal spending in Germany and France is 10 percent above pre-crisis levels, but it has not yet recovered completely in Italy and Spain,” they said.

More than 107 million people are employed in the euro zone, but the unemployment rate, at 8.3 percent, is still a whole 1 percent above pre-crisis levels.

The slowdown comes at a particularly vulnerable moment for ECB, given that the euro zone’s central financial institution began to phase out its stimulus programmes created to boost economy after the crisis. By the year’s end they are planning to abolish the €2.6 trillion bond-buying programme, in hopes that GDP growth can be sustained with the central bank’s moderate support.

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