Ahead of the escalation in the crisis in Ukraine, eurozone economy was gaining traction

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LONDON – A double dose of positive economic news Wednesday showed that the recovery of the 18-country eurozone pushed up a gear at the start of 2014 and in the period before the crisis in Ukraine escalated.

Since it emerged from its longest-ever recession last summer, the eurozone recovery has been muted, with a number of the countries that use the euro hobbled by austerity measures their governments have taken to get their public finances into shape and allow them to return to financial markets to borrow money.

The figures released Wednesday suggest growth is accelerating, to the likely relief of policymakers at the European Central Bank who have been mulling whether to do more to stimulate the recovery at the same time as trying to ward off the risk of deflation — a sustained fall in prices that can strangle growth.

Most notably, a survey from financial information company Markit suggested that economic growth in the eurozone accelerated to a 32-month high in February, largely on the back of the services sector and strong growth in Germany, Europe’s largest economy.

And in a sign that Europe’s indebted countries maybe over the worst, Markit found that Spain is enjoying its best quarter in seven years, while Italy is growing at a near 3-year high.

Markit’s composite purchasing managers index — a broad gauge of business sentiment — rose to 53.3 points in February. That was up from the initial estimate of 52.7 and ahead of January’s 52.9. Anything above 50 indicates growth.

“The survey suggests the region is on course to grow by 0.4-0.5 per cent in the first quarter, which would be its best performance for three years,” said Markit’s chief economist Chris Williamson.

In the final quarter of 2013, the eurozone grew by a quarterly 0.3 per cent, which equates to an annualized rate of around 1.2 per cent.

Further good news came from Eurostat, the EU’s statistics agency, which revealed that retail sales in the eurozone rose by a monthly rate of 1.6 per cent in January, more than offsetting the previous month’s 1.3 per cent decline, and double the consensus in financial markets.

The figures pre-dated the escalation of the crisis in Ukraine and the potential knock to confidence. The crisis, which has seen Russia effectively take control of the Crimea Peninsula, has raised the spectre of tit-for-tat sanctions between the U.S. and EU on one side and Moscow on the other, potentially weighing on growth.

“At a time when the economic outlook is already highly uncertain, the Ukraine crisis is perhaps another reminder to European policymakers that they cannot rely on an unambiguously favourable international environment to sustain and strengthen the nascent recovery in the region,” said Jonathan Loynes, chief European economist at Capital Economics.

Most analysts, though not Loynes himself, think the improving economic backdrop means it’s unlikely that the ECB will enact further easing measures Thursday, such as cutting its benchmark interest rate from the already-record low of 0.25 per cent.

Still, some analysts say it is not totally out of the question that the ECB might take action. The ECB is due to publish its staff’s economic projections through to 2016, and there will be interest in the inflation forecasts.

Though official reports last week showed consumer prices were up a slightly higher-than-anticipated 0.8 per cent in the year to February, inflation remains low and is likely to remain so for months. That matters to the ECB, because inflation is the main focus of its monetary policy — it aims to keep price rises just below 2 per cent.

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