Saturday 21 October 2017

ECB boosted as business activity rises in Eurozone

Mario Draghi
Mario Draghi

Jonathan Cable

Business activity in the Eurozone has expanded at the fastest rate this year in October, even as firms raise prices at the sharpest rate in more than five years, a new survey shows.

The upturn in both activity and prices will make welcome reading for President Mario Draghi and his policymakers at the European Central Bank, who left their ultra-loose policy unchanged last Thursday but kept the door open to more stimulus in December.

IHS Markit's Eurozone flash composite Purchasing Managers' Index (PMI), seen as a good overall growth indicator, jumped to 53.7 from September's 52.6.

It was the highest reading since last December and far above the 50 point line indicating growth in activity.

It smashed even the highest forecast in a Reuters poll of economists which had predicted a more modest rise to 52.8.

"It's an encouraging picture. There are plenty of signs here that this number is going to keep improving as a lot of the sub-indexes are cementing a picture of better headline PMI numbers coming through," said Chris Williamson, chief business economist at IHS Markit.

Mr Williamson said that if maintained, the PMI pointed to 0.4pc growth in the current quarter, although he added that there were upside risks to that prediction.

A Reuters poll last week predicted a more modest growth rate of 0.3pc.

Inflation is nowhere near the ECB's 2pc target ceiling - it was just 0.4pc in September - so evidence of increasing price pressures could dampen expectations that the ECB extends its massive asset-buying programme.

A subindex measuring output prices jumped to 50.5 from 50.0, its highest level since August 2011. "It's a shift from a buyer's market to a seller's market which is associated with prices rising. It's early days yet but it's a shift in the right direction," Chris Williamson said.

The bloc's dominant service industry also performed much better than expected. Its PMI came in at a nine-month high of 53.5, ahead of September's 52.2 and beating all forecasts in a Reuters poll where the median call was for 52.4. Suggesting the acceleration could continue into November, new business soared. The index registered 53.2, up from 52.5. (Reuters)

Irish Independent

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