Saturday 24 February 2018

Factory output in the euro area at five-year high in December

The news lifted markets across the continent Photo: PA
The news lifted markets across the continent Photo: PA
Donal O'Donovan

Donal O'Donovan

Euro-area manufacturing expanded in December at the fastest rate since April 2011, in the clearest sign yet that an often fragile recovery in the single currency area remains intact heading into 2017.

The news lifted markets across the continent, where stock exchanges were mostly open yesterday.

The latest data shows manufacturers ramped up activity at the fastest pace in more than five years in December and are building up a burgeoning order book. The data is the latest to suggest that June's Brexit vote, Donald Trump's election and political uncertainty in Europe have so far failed to dent the economy.

IHS Markit's final 2016 manufacturing Purchasing Managers' Index (PMI) for the Eurozone registered 54.9 in December, in line with an earlier flash estimate and its highest since April 2011. That was above the 50 mark which separates growth from contraction and November's 53.7 reading.

"Eurozone manufacturers are entering 2017 on a strong footing, having ended 2016 with a surge in production," said Chris Williamson, chief business economist at IHS Markit. "To put the PMI data into perspective, the five-and-a-half-year high reached in December is broadly consistent with factory output growing at an impressive annual rate of approximately 4pc."

Suggesting this month will also be strong, a new orders sub-index climbed to 55.9 from 54.4, its highest since April 2011, even though companies raised prices at the fastest rate in over five years. "Policymakers will be doubly pleased to see the manufacturing sector's improved outlook being accompanied by rising price pressures," Williamson said.

Yesterday's data didn't include Irish output figures, but the readings rose in all seven of the countries in the survey, with growth strongest in the Netherlands and Austria.

Germany's gauge was at the highest in three years, France's in more than five years, and Spain's in 11 months. Even among the laggards, Italy's pace of growth improved and Greece's contraction eased.

The results are a boon to policy makers who are close to the limits of trying to kickstart the economy with so-called fiscal stimulus - the term for pumping cheap money into the financial system. In a surprise move last month, the European Central Bank (ECB) reduced the scale of its monetary supports but promised to keep stimulus going for longer.

The sooner the recovery in the economy becomes self-sustaining, the sooner the ECB's extreme measures to prop up growth can be gradually withdrawn.

In Germany, growth reached its highest in almost three years in December, driven by rising demand from Asia and the US.

Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the German economy, rose to 55.6 from 54.3 in November. "Strong growth in December meant that goods producers enjoyed their best quarter in nearly three years during Q4," Markit economist Philip Leake said. "The manufacturing sector is therefore likely to help overall growth accelerate from the modest 0.2pc pace seen in the third quarter."

The survey was another positive sign after Ifo's closely watched business climate index showed last month that morale among German executives rose in December to its highest level since February 2014. (Additional reporting agencies)

Irish Independent

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