Consumers drive the recovery

The euro-zone economic recovery has gained some pace thanks to a pick-up in consumer spending growth. The annual growth rate of retail sales volumes rose to near a ten-year high in January, due partly to falling prices. And a sharp rise in consumer confidence in March suggested that this trend would continue. But in contrast, export growth has remained weak by past standards despite the marked depreciation of the euro exchange rate over recent months. Export growth should accelerate in time, perhaps causing overall growth to pick up further. But as exporters are likely to use some of the euro’s decline to restore their profit margins and given that high unemployment is set to limit the consumer recovery, we doubt that GDP growth will really take off.