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Eurozone recovery broadens with strongest growth in six years

Apr 21 2017 12:29
Bloomberg: Piotr Skolimowski and Catherine Bosley

Frankfurt - Eurozone economic momentum accelerated to its fastest pace in six years, with France unexpectedly outperforming Germany in a strong start to the the second quarter that suggests the recovery is broadening.

France’s composite Purchasing Managers’ Index unexpectedly advanced to a six-year high of 57.4 in April, putting it above Germany’s for the first time since 2012, according IHS Markit flash readings on Friday. The manufacturing and services index for the region as a whole also increased, exceeding economists’ forecasts and indicating job creation is rising to the highest level in almost a decade.

The euro-area recovery is gathering pace despite a looming election in France, which could result in a president who is openly hostile to the single currency. The economic resilience is slowly pushing the European Central Bank toward a discussion about an exit from its unprecedented stimulus, which it has pledged to keep in place until at least the end of this year.  

“An interesting feature of the current upswing is that the positive momentum is broadly spread across most eurozone countries and not only driven by a few strong ones,” said Carsten Brzeski, an economist at ING-DiBa in Frankfurt.

“Even though on the eve of the first round of the French elections a good portion of caution is recommendable, evidence is piling up that the eurozone economy could become the positive growth surprise of the year.

IHS Markit’s composite measure for the eurozone rose to 56.7 in April from 56.4 in March. Economists surveyed by Bloomberg predicted the reading would remain unchanged. There was more evidence of growing wage pressures, according to the report.

The 2017 election campaign in France has been a close contest of late, with both Communist-backed Jean-Luc Melenchon and Republican Francois Fillon hoping to snatch a place in the May 7 runoff from the front-runners Marine Le Pen and Emmanuel Macron. The first round of voting takes place on Sunday.

“France’s elections pose the highest near-term risk to the outlook, but in the lead-up to the vote the business mood has clearly been buoyant,” said Chris Williamson, chief business economist at IHS Markit.

Eurozone price pressures remained elevated, with both input prices and those charged for goods and services holding close to their six-year highs. The gauge for manufacturing in the region advanced to 56.8 from 56.2 in March, the highest level in six years, IHS Markit said. The services PMI rose to 56.2 from 56.

“Elsewhere in the region the pace of expansion has accelerated to a near 10-year high, cementing the increasingly broad-based nature of the upturn,” Williamson said.

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ecb  |  eurozone  |  economy

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