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The European Central Bank is the central bank for the euro and administers monetary policy of the eurozone. The headquarter is in Frankfurt, Germany

Eurozone Grew By 2.5% In 2017

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The Eurozone economy expanded at the fastest pace for a decade in 2017. The 19-nation bloc grew by 2.5% last year, according to official statistics from Eurostat, the highest expansion since 2007 when it grew by 3%.

Quantitative Easing Drives Growth

The Eurozone grew by 0.6% in the final three months of 2017, evidence that the European Central Bank’s massive economic stimulus program is driving Eurozone growth. The bank has cut its key interest rate to zeroand is spending billions of euros a month buying financial assets — known as quantitative easing — as Eurozone inflation has remained weak.

In December last year, the ECB upgraded its growth forecast for the Eurozone, from 1.8% to 2.3% growth in 2018. The estimate for 2019 was also revised upwards, from 1.7% to 1.9%.

UK Economy Grew More than Expected

Meanwhile, the UK economy grew more than expected in the final quarter of 2017: 0.5%, instead of the 0.4% expected by economists in the three months to December.

Economists now think it is more likely that the UK will raise interest rates again, as soon as this summer. Sterling climbed 0.8% to $1.4253 immediately following the release of the GDP figures.

But the data put the UK’s overall growth in 2017 at 1.8%, down from 1.9% in 2016 — the slowest since 2012, according to the Office for National Statistics.

The UK’s growth is also more uneven. The services sector accounts for the bulk of the UK economy and grew by 0.6% in the last quarter, stronger than the 0.4% growth it posted in the three months to September.

Darren Morgan, head of GDP at the ONS, said: “The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management.” He added that consumer-facing sections of the services sector, such as transport and tourism, recorded much slower growth.

The UK’s construction sector contracted by 1%, the third consecutive decline and worst quarterly performance since 2012.

Economists said that construction was bearing the brunt of Brexit uncertainty, which has deterred commercial property investment and weakened the housing market, especially in London.

UK Manufacturing Slowdown

Britain’s manufacturers also showed signs of a slowdown, with the Market/CIPS UK manufacturing PMI reporting that activity fell to 55.3 in January, from 56.2 in December. A level above 50 indicates expansion.

UK manufacturers have seen a recent upsurge in demand from China, Japan, the Middle East and North America. Europe has also been a stronger buyer, as its economic recovery continues.

But the increase in demand for goods has led to a rise in demand for raw materials such as oil and metals, raising prices and putting pressure on manufacturers’ profit margins.

Global Growth Forecast Revised Upwards

Nevertheless, Europe’s expanding economy has contributed to optimism about the global economy’s prospects, with the International Monetary Fund raising its global growth forecast for this year and next to 3.9%. The IMF said that the recent growth surge was broad but is particularly strong in Europe and Asia.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.