Euro area economy looks strong but inflation is weak

Bloomberg

The euro area is set to start the new year the way it ended the old: the economy is strong but inflation is weak.
The region’s fastest growth in a decade will be confirmed this week in a burst of data that should also show economic confidence at the highest since the currency bloc’s early days, unemployment at a post-crisis low, and manufacturing continuing to boom. Yet inflation, the key metric for the European Central Bank, will probably be the slowest in six months.
The readings will cement the 19-nation region’s transformed reputation from an economic black spot to a pillar of the global upswing, an opinion expressed frequently at the recently concluded World Economic Forum in Davos, Switzerland.
They will also underpin ECB President Mario Draghi’s argument that it’s still too soon to consider winding down the unprecedented monetary stimulus that sparked the recovery.
A Bloomberg survey of economists predicts fourth-quarter GDP growth of 0.6 percent, the 19th straight expansion. Economic confidence this month was probably the strongest since 2000.
Data on Wednesday will likely show inflation in January weakened to 1.3 percent from 1.4 percent, with underlying price growth picking up slightly to 1 percent. Neither is enough—the ECB’s goal is for price growth to average just under 2 percent over the medium term without monetary support.
Governing Council member Klaas Knot renewed his hawkish push in an interview on Dutch television on Sunday. He said that the ECB should end asset purchases as soon as possible, arguing that the “programme has done what could realistically be expected of it.”
“Economic growth is vibrant — Bloomberg Economics expects a reading of 0.6 percent to be recorded for the region in Q4.