Euro zone vs Britain: strong and stable, weak and wobbly


By Jeremy GauntLONDON, June 20 (Reuters) - Britain and the euro zone are on
such different economic paths as they move on with their divorce
proceedings, London probably wishes it had done a pre-nup.
    While Britain's economy is showing all kinds of strain -- as
underlined starkly on Tuesday by Bank of England Governor Mark
Carney -- the 19-member single currency area is more buoyant
that it has been in years.
    This also was made clear on Tuesday with a bullish upgrade
for German growth from one of its main economic research
institutes, Ifo.
    Amusingly, Ifo's press release noted Germany's economy is
"strong and stable", echoing British Prime Minister Theresa
May's campaign mantra for a June 8 election which backfired on
her by depriving her of a parliamentary majority.
    Instead of matching its stereotype of a lagging, moribund
growth engine, the euro zone -- the EU's core -- is now being
hailed as relatively dynamic.
    Brian Coulton, chief economist at Fitch Ratings, noted as
much late on Monday when his firm significantly upgraded its
2017 euro zone growth forecast to 2 percent from 1.7 percent,
leaving it just a tad behind the United States.
    "Stronger incoming data, improving external demand and
greater confidence that (European Central Bank policy) is
gaining traction on activity have resulted in (our) upward
revision," he said.
    Britain, by contrast, was seen by Fitch growing 1.5 percent
this year, down from 1.8 percent last year and 2.1 percent in
pre-Brexit vote 2015.
    The fall in the value of the pound after the Brexit
referendum has pushed up inflation and hit consumer spending in
Britain, taking it from being one of the fastest-growing
economies among the Group of Seven nations in 2016 to its
slowest in early 2017. [nL8N1JG49J]
    The BoE's Carney in a speech on Tuesday made no bones about
his view of the danger to Britain's economy from Brexit, saying
firmly that now was not the time to raise interest rates even if
inflation was at 2.9 percent. [nL8N1JH1BB]
    He also took at dig at leading Brexit advocate Boris
Johnson, now foreign minister, who once said Britain could have
its cake and eat it outside the EU.
    "Before long, we will all begin to find out the extent to
which Brexit is a gentle stroll along a smooth path to a land of
cake and consumption," he said, then added:
    "Monetary policy cannot prevent the weaker real income
growth likely to accompany the transition to new trading
arrangements with the EU."

    Some of Britain's woes will be based on uncertainty about
what kind of Brexit it will have. The lucrative trade deals
promised by Brexit advocates, for example, may well come but
they are a long way off.
    There is appears little such uncertainty in the rest of
Europe, however.
    In its latest forecast, Ifo said the upturn in the German
economy that began in 2013 is becoming broader and gaining
impetus -- a key for Europe as a whole given Germany's dominant
economic role. [nL8N1JH1LV}
    It also indicated that it did not expect Germany to suffer
from Brexit.
    "An exit plan should emerge early on without any major
negative effects on the economic interdependence between the EU
and Britain," said Timo Wollmershaeuser, Ifo's head of economic
    But it is not all Germany. Spain said on Tuesday it planned
to raise its 2017 GDP growth forecast upwards from the current
2.7 percent. The Bank of France has also raised it forecast to
1.6 percent and manufacturing surveys are relatively bullish.
    Problems remain of course -- with Italy, in particular --
but the overall outlook is upbeat, adding strength to one side
in the great Brexit divorce.

 (Additional reporting by William Schomberg, David Milliken and
Michael Niebaber; editing by Mark John)
 ((jeremy.gaunt@thomsonreuters.com; +44 207 542 1028; Reuters
Messaging: jeremy.gaunt@reuters.com@reuters.net))


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