“The Eurozone’s outlook has improved markedly since the start of the year. Momentum from the first quarter seems to have extended to Q2 based on strong manufacturing and services purchasing managers indices. The composite PMIs in both Germany and France jumped to six-year highs in May...Eurostat data shows employment rising to an all-time high in Q1, surpassing the 2008 peak for the first time.” (National Bank of Canada, Monthly Economic Monitor, July/August 2017)

Output in the euro zone expanded 0.6% in the second quarter of 2017, representing one of the fastest quarterly growth rates since the Great Recession ended eight years ago. Interestingly enough, despite clear signs of improving economic growth in the euro zone, the  European Central Bank (ECB) recently reduced its inflation projections for the euro zone.

According to its latest projection, the ECB currently expects an inflation rate of 1.5% in 2017, 1.3% in 2018 and 1.6% in 2019. The deceleration of inflation through to 2019 reflects the recent decline in the price of oil as well as the expectation that oil prices will continue to remain depressed for a while longer.

As matters currently stand, the euro zone recorded 2.2% real GDP growth in the second quarter of 2017.

Among the larger countries in the currency block, France posted 2.2% growth in Q2, Germany 2.3% growth and Italy 1.8% growth.

The relatively strong growth rates of the larger economies in the zone has focused considerable attention on the ECB’s ultra-loose monetary policy. Indeed, there already has already been considerable discussion relating to when the ECB will begin tapering back on its aggressive bond-buying program. Despite the signs of improved euro area growth, Draghi, the head of the ECB, has indicated that slow wage gains and low oil prices are still limiting any move in a tightening direction.

Finally, the unknown outcome of the Brexit effect could be serious for the euro area economies.

As the second chart below illustrates, more than 13% of the euro zone’s exports are shipped to the UK. Thus, any serious kind of trade interruption will not only hurt the British economy, but also its European partners.