Business World

Saturday 25 November 2017

Eurozone's economy beats predictions with activity at six-year high

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt

Jonathan Cable

Business activity in the eurozone shot to a six-year high last month, thanks to a stronger-than-expected performance in France.

That suggests companies were able to shrug off any election concern.

Signs the bloc is on a sustainable growth path, along with inflationary pressures, will be welcomed by the European Central Bank, which has struggled for years to achieve either, despite ultra-loose monetary policy. Consumer confidence is also improving.

IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to growth, climbed to 56.7 from March's 56.4, its highest since April 2011. A reading above 50 indicates growth.

"April's rise in the eurozone composite PMI adds to evidence that the economy is performing well," said Jennifer McKeown, chief European economist at Capital Economics.

IHS Markit said the latest PMI data, if maintained, pointed to second-quarter economic growth of 0.7pc, well above the 0.4pc predicted in a Reuters poll on Thursday.

"There is a good outlook for the year - it looks like the upturn has legs. With numbers like these, people are going to start edging up their forecasts," said Chris Williamson, chief business economist at IHS Markit.

Earlier data from Germany showed its private sector grew at a slower pace this month as services shifted into a lower gear but factory activity remained high, suggesting Europe's biggest economy is carrying its upswing into the second quarter.

French business activity confounded expectations in April by growing at the fastest pace in nearly six years, showing no signs of cooling down just days before the most uncertain presidential election in years.

Although no major survey sees her winning, far right and anti-European Union leader Marine Le Pen is polling strongly. None of the economists polled by Reuters this week said she would be best for French economic growth.

"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," said ING chief economist Carsten Brzeski. Providing further evidence the recovery will continue, a sub-index measuring new business in the Eurozone only dipped to 55.8 from March's six-year high of 56.2.

Firms in the bloc's dominant service industry increased activity faster this month, with its PMI rising to 56.2 from 56.0, a six-year high. That was above all forecasts in a Reuters poll, where the median predicted no change.

Meanwhile global markets appeared largely calm yesterday, the last day of trading before the first round of France's presidential election, with French bond yields hitting a three-month low and the euro treading water against the dollar.

Investors seemed relatively confident that while the far-right Marine Le Pen might well win enough votes tomorrow to make the second round on May 7, she will then be comfortably beaten, probably by centrist candidate Emmanuel Macron.

"On the assumption that the French election will provide a market-friendly winner, we believe that Eurozone assets may be poised to rally strongly in the next few weeks as political risk declines," said Mark Dowding, partner at BlueBay Asset Management in London. (Reuters)

Irish Independent

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