By Edward Hadas
LONDON, Oct 3 (Reuters Breakingviews) - Economic momentum has turned clearly positive in Europe. Monthly euro zone retail sales were 2.5 percent higher this summer than last. The final reading on Markit's September survey of euro zone purchasing managers' sentiment suggests a quarterly GDP growth rate of 0.2 percent, according to Barclays.
That equates to annual GDP growth of less than 1 percent, which is hardly impressive. But the momentum is decidedly positive. Credit Suisse is expecting 1.4 percent growth in 2014. Other economists are starting to whisper about 2 percent, as long as the lingering euro crisis fades further.
The UK is doing better. The Markit services PMI for Britain was 60.3. That corresponds with 1.2 percent quarterly GDP growth, according to the Royal Bank of Canada. Credit Suisse expects the British economy to expand 2.5 percent in 2014.
Still, looked at from a longer perspective, Europe is only running faster in a race to catch up with itself. GDP in both the UK and euro zone remains about 2 percent below the peak level before the 2008-9 financial crisis. Across the region, labour markets are much further behind their pre-crisis position.
The renewed European growth is part of a muted recovery in the world's developed economies. As the long stagnation yields to a mild forward motion, and as growth forecasts are revised upwards, it is tempting to hope for more acceleration.
That looks unlikely. The financial morass remains almost as thick as ever in almost every developed economy. The euro zone needs to finish a painful internal rebalancing under severe political pressure. That will keep growth slow in Spain and Italy for years.
In addition, the demographic pressures on growth are set to intensify. The number of Europeans aged 20 to 35 years - the age of household formation - is declining by almost 1 percent each year. That reduces potential demand. Simultaneously, the number of people aged over 60 is increasing by about 1.5 percent a year. That increases the pressure on governments to fund healthcare and pensions and skimp on growth-enhancing investment.
- The Markit/CIPS UK Services Purchasing Managers Index (PMI) for September was 60.3, down from 60.5 in August. Over the third quarter as a whole, the index averaged its highest level since Q2 1997.
- The final reading of the composite euro zone Markit PMI was 52.2, higher than the first estimate of 52.1 and the August reading of 51.5.
- Euro zone retail sales were 0.7 percent higher in August than in July. The average level of July and August is 2.5 percent higher than in the previous year, according to JPMorgan calculations.
- Reuters: Europe's tentative recovery spreads south in September
- Reuters: UK service sector Q3 growth strongest in 16 years - PMI
- Reuters: Euro zone August retail sales much stronger than expected
- For previous columns by the author, Reuters customers can click on
(Editing by Robert Cole and Sarah Bailey)
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