Eurozone economy starts 2017 solidly, especially on jobs

AP News
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Posted: Feb 03, 2017 11:52 AM
Eurozone economy starts 2017 solidly, especially on jobs

LONDON (AP) — The economy of the 19 countries that use the euro got off to a strong start in 2017 even as inflation pressures continue to mount in the wake of the recent rise in oil prices, a closely watched survey showed Friday.

Financial information company IHS Markit said its gauge of business activity across the manufacturing and services sectors held steady at a five-and-a-half-year high of 54.4 points in January, still way above the 50 threshold between expansion and contraction. Encouragingly, the index's gauge of job creation spiked to a near nine-year high.

The firm said the recovery remains broad-based across the eurozone, but that it was particularly strong in Ireland, Spain and France.

The survey comes hot on the heels of figures showing the eurozone economy expanded by a healthy 0.5 percent quarterly tick in the final three months of the year and several other indicators pointing to a pick-up in activity.

Separate figures released Friday by the European Union's statistics agency showing a 0.3 percent monthly decline in retail sales in December did little to alter that view. Over the fourth quarter as a whole, retail sales were still up a healthy 0.8 percent, analysts said.

IHS Markit said its survey points to a quarterly growth rate of 0.4 percent and that it anticipates further "robust" growth over the year, not least because of the improving jobs backdrop. Figures earlier this week showed unemployment across the region dropped to 9.6 percent, its lowest level since May 2009, before a financial implosion in Greece that year set off a debt crisis that almost shattered the eurozone.

"With jobs being created at the fastest rate since the global financial crisis, it certainly seems that companies are looking to expand and are not overly concerned about how business might be affected by political uncertainty," said Chris Williamson, chief business economist at IHS Markit.

The eurozone faces a number of political challenges this year that could potentially derail the economy's recovery. They include uncertainty over whether President Donald Trump ushers in a new age of trade protectionism, the start of Britain's withdrawal from the European Union and elections in Germany and France, among others.

"There remains a significant risk of political events subduing or even derailing the upturn, meaning we retain a cautious outlook for the eurozone, with GDP likely to rise by only 1.5 percent this year," Williamson said.

Another potential headache for the eurozone economy relates to rising inflation pressures that are largely due to the pick-up in oil prices from multi-year lows. According to IHS Markit, input cost inflation accelerated again in January, taking the rate of increase to its highest since March 2012.