2017.06.2207:28:00UTC+00ECB Says Eurozone Solid Growth Pace To Continue In Q2

Eurozone's solid growth momentum is set to continue in the second quarter, mainly driven by domestic demand, and there are signs of a build-up of pipeline inflationary pressures, the European Central Bank said in its latest economic bulletin released on Thursday.

"Overall, incoming data point to solid growth in the second quarter of 2017," the bank said.

The 19-nation economy expanded 0.6 percent in the first three months of the year after 0.5 percent in the fourth quarter of 2016.

"The euro area economy has now expanded for four consecutive years and growth has become increasingly resilient as it has broadened across sectors and countries," the ECB said in the report.

"Euro area growth is supported primarily by domestic demand, although tailwinds from the external environment have increasingly lent support to the outlook," the bank said.

While underlying inflation is yet to show any sign of an upward adjustment, there has been a build-up of pipeline pressures at the early stages of production and pricing chain, though wage growth remains low, the bank said.

"On the basis of current oil futures prices, headline inflation is likely to fluctuate around current levels in the coming months," the ECB said.

"Looking through recent volatility, underlying inflation has yet to show convincing signs of a pick-up and is expected to rise only gradually over the medium term."

On June 8, the Governing Council, led by ECB President Mario Draghi, kept all three interest rates unchanged for a tenth successive policy session, as policymakers remain unconvinced whether inflation will move closer to target despite the robust growth.

The ECB Staff had trimmed their inflation projections and raised the growth forecasts.

The bank noted in the bulletin that the rebound in the euro area housing markets is increasingly supporting growth momentum and the recovery is particularly visible in labor markets although there is still sizeable slack. The improvement in labor markets is expected to boost private consumption.

The ECB also expects the recovery in business investment to continue to be supported by very favorable financing conditions and very accommodative monetary policy, among others.

Further, an improved external environment led to a rebound in Eurozone export momentum that is expected to continue, the report said.

Though surveys and new export orders in the second quarter suggest sustained export momentum in the near term, risks to trade remain elevated, primarily relating to an increase in protectionism that has the potential to hamper global growth, the ECB said.