Europe’s recovery gains momentum

Conditions remain in place for ongoing economic expansion in the euro area

Jean-Claude Trichet
President
European Central Bank

The UK looks poised to see the revival of a dynamic market on its own doorstep: the Eurozone economies.

Confidence is growing across the region.

In March 2006, the European Commission said that confidence among European executives and consumers in February rose to its highest level in almost five years.

European service industries, which now account for a third of the Eurozone’s €7.5 trillion economy, are expected to have grown at their fastest rate in two years, as the export-led expansion, fuelled by last year’s 13 per cent fall in the euro against the dollar, spread deeper into the economies.

As the top foreign investment location in Europe, the UK and the ambitious businesses based there are uniquely positioned to capitalise on the growing economies of its near neighbours.

GDP up across Europe

Growth figures released for the final three months of last year show Eurozone gross domestic product rose 0.3 per cent on the previous three months and 1.7 per cent on the previous year.

The European Central Bank (ECB), which last year predicted Eurozone growth for 2006 at 1.5 per cent, revised it to 1.9 per cent last December and to 2.1 per cent in March. (Although this would still be behind the current forecasts of 2.4 per cent for the UK.)

Furthermore, growing evidence of economic recovery prompted the ECB to lift interest rates by 0.25 per cent to 2.5 per cent, the second quarter-point increase in three months, with European economists predicting rates could hit 3.5 per cent by the end of this year.

ECB president Jean-Claude Trichet said: “The conditions remain in place for ongoing economic expansion in the euro area…investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions.”

What’s good for Europe is great for the UK

Evidence that the UK is benefiting from the increasing momentum of the Eurozone recovery is contained in the UK’s latest manufacturing-output statistics, which have now risen for three consecutive months (to January 2006).

The seasonally-adjusted output figures for January rose 0.2 per cent and the figures for December – already up by 0.3 per cent – were increased to 0.5 per cent.

Economists say the growth demonstrates that UK industry is showing signs of reaping the benefits of the recent recovery of its major Eurozone trading partners.

Accessing the Eurozone from the UK

Evidence suggests that the UK is cementing its position as the top business location for accessing the burgeoning Eurozone economy.

As you would expect, more financial services business is done in The City of London than in any other Eurozone city.

And absence of tariffs within the European Union means companies coming to the UK to access the Eurozone will pay minimal transaction costs when exporting their goods to EU countries.

Furthermore, the Healey & Baker European Cities Monitor has voted London as the best city in Europe for ease of access to markets for the past two years.