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Spain accelerates, EZ deflates

Friday, January 30, 2015 - 02:28

A round of positive data from Europe brings a rare glimmer of optimism on the European economy, but deflation is still very much on the radar. A day after Germany reported its first negative inflation in four years, data shows euro zone prices sinking faster, too. David Pollard reports.

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Relaxation Spanish style. But away from the chilled boulevard atmosphere - more activity than you think. At least, according to Spain's stats office - it says the economy there's been growing at its fastest in seven years. Up 0.7 percent on the quarter in Q4. With economic output up two percent from a year earlier, beating forecasts. Jane Foley of Rabobank says it's peripheral progress. SOUNDBITE (English) JANE FOLEY, SENIOR STRATEGIST, RABOBANK, SAYING: '' This does highlight the impact of structural reforms and the improvement that some of the peripheral countries have made .... Clearly there are some parts of Spain which remain under pressure, but certainly if we look at the growth rate in Spain, if we look at the growth rate in Ireland and then also if we look at the growth and the turnaround in sectors such as exporting in Portugal too, what we are seeing is some vastly better news than we were listening to two, three years ago.'' It wasn't the only good data. Latest numbers from Germany show retail sales there up on the year by 4 per cent in December. French consumer spending rose unexpectedly in the same month as cold weather drove energy consumption. And Italian unemployment fell sharply. That will be some long-awaited positive news for Matteo Renzi's government. It's bidding to get its candidate for president elected in the current round of parliamentary voting. There's already talk of early general elections if it fails to do that - and, possibly, more Greek-style uncertainty in the euro zone. A bigger worry for now might be the latest inflation data. Germany has already announced negative consumer prices in January - for the first time in over four years. Now it's confirmed that prices across the euro zone fell 0.6 per cent in the same month - more steeply than expected. Energy prices are largely to blame - they were down nearly nine per cent. That could be a temporary effect, say economists, and should help consumers. But not central bankers. SOUNDBITE (English) JANE FOLEY, SENIOR STRATEGIST, RABOBANK, SAYING: ''What the central banks have to do is fight the deflationary mindset, in which case consumers would stop spending because they anticipated that prices would come down, and in that scenario we would firms having to cut production and potentially cut wages and we would get a deflationary spiral.'' And pessimists point out that core inflation - which strips out volatile fuel and food costs - was down too, to just 0.6 per cent.

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Spain accelerates, EZ deflates

Friday, January 30, 2015 - 02:28