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Frankfurt - A Purchasing Managers’ Index rose to 56.7 in March, the highest level in almost six years, from 56, IHS Markit said on Friday. That compares with economists’ expectation for a decline to 55.8 and is in line with a quarterly gross-domestic-product expansion of 0.6%. Employment rose the most since July 2007, with hiring picking up both in services and manufacturing.
A broadening recovery has so far allowed the currency bloc to weather a period fraught with uncertainties ranging from the U.K.’s Brexit vote to the US administration’s trade policies, as well as upcoming elections in eurozone countries.
As momentum gathers and a mostly oil-driven spike in inflation firms, the European Central Bank is coming under increasing pressure to plan an exit from its extraordinary stimulus.
“The acceleration in growth toward the end of the quarter, as well as improving trends in new business and an increased appetite to hire, suggest that strong growth momentum will be sustained into the second quarter,” said Chris Williamson, chief business economist at IHS Markit. “Perhaps the best news came from France, where growth has risen above that seen in Germany, led by strengthening domestic demand.”
A gauge of factory activity jumped to 56.2 in March from 55.4 and an index of services output surged to 56.5 from 55.5 in February. Both PMIs are at the highest level in 71 months. Earlier on Friday, IHS Markit reported increases in gauges for both the French and German economies.
Strong momentum
“Economic momentum in the euro zone remains very strong,” Julien Lafargue, a strategist at JP Morgan Private Bank in London, said by email. “While some uncertainty persists at the political level, fundamentals in the region have been firming noticeably.
With inflation pressures starting to build up and the survey showing the best employment growth for almost a decade, the days of the ECB’s quantitative easing program appear numbered, especially if the outcome of the French elections turns out to be benign.”
Across the region, input prices are rising at the fastest pace since the first half of 2011, and in many cases are being passed on to customers, as a weaker euro and higher commodity prices add to producers’ costs. Signs of labor shortages and an acceleration in wages also suggest that a self-sustained pick-up in inflation may be on its way.
“The PMI activity and price indices have moved well into territory which would normally be associated with the ECB tightening policy,” Williamson said. “Speculation may intensify that the central bank could risk falling behind the curve if growth continues to strengthen and inflation proves stickier than expected.”
The ECB holds its next policy-setting meeting on April 27.
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