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Euro zone steams into 2017 but inflation's a worry

Monday, January 30, 2017 - 01:21

The euro zone economy has kicked off the year robustly, according to data from the Baltic to the Mediterranean. As Sonia Legg reports, it suggests the ECB's massive cash stimulus is working but also poses questions about what comes next.

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They'd been expecting an increase but not quite such a big one. Inflation in Germany has reached a three and a half year high. At 1.9 per cent it's close to the ECB's target figure of 2 percent - and in some region's it's as high as 2.3 percent. (SOUNDBITE) (English) JASPER LAWLER, SENIOR MARKET ANALYST AT LCG , SAYING: "That's going to be a rising flag for the European Central Bank and its easing policy which has been supporting growth in the euro zone." That prospect sent borrowing costs soaring. And with a Presidential election looming too French government bond yields hit a16-month high. (SOUNDBITE) (English) JASPER LAWLER, SENIOR MARKET ANALYST AT LCG , SAYING: "If we get to the stage where the European Central Bank has to 180, that's going to be a real headwind to Europe. They haven't sign posted that yet. We still have another year's worth of asset purchases but that policy might have to change." For now that's proving to be robust. All 19 euro zone countries are doing better than many expected. Manufacturing confidence in the Netherlands hit its highest level since 2008. And in Spain GDP in 2016 was 3.2 percent, despite the fall out from a banking-debt crisis and a recession. There are still issues that could complicate the euro zone's progress. And Greece is still one of them. It's not yet secured the latest tranche of its third international bailout despite months of trying.

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Euro zone steams into 2017 but inflation's a worry

Monday, January 30, 2017 - 01:21