Eurozone economy seen running at near 6-year high

AP News
Posted: Feb 21, 2017 10:32 AM
Eurozone economy seen running at near 6-year high

LONDON (AP) — Economic growth in the 19-country eurozone accelerated in February to a near six-year high, a closely watched survey found Tuesday.

In its monthly survey of economic activity across the region, financial information company IHS Markit also said job creation was the best for nine and a half years, as order books and business optimism continued to pick up.

The firm's purchasing managers' composite output index — a broad gauge of economic activity — spiked to 56.0 points in February from 54.4 the previous month. The index now stands at its highest level since April 2011, and is pointing to potentially robust quarterly growth of 0.6 percent in the first three months of the year — if the current pace is sustained into March.

"The eurozone economy moved up a gear in February," said Chris Williamson, the firm's chief business economist. "With inflows of new orders also surging and firms becoming even more optimistic about the year ahead, growth could even lift higher in coming months."

The big surprise within the survey was that France appears to be growing slightly faster than Germany for the first time since August 2012. Both, according to Williamson, are growing at rates of between 0.6 percent and 0.7 percent in the first quarter.

"France's revival represents a much-needed broadening out of the region's recovery and bodes well for the eurozone's upturn to become more self-sustaining," said Williamson.

France is in focus at the moment ahead of upcoming elections. Opinion polls suggest that the race is narrowing. Though they show that far-right presidential candidate Marine Le Pen would be ahead in the first ballot, she still trails potential rivals in the subsequent runoff.

Political uncertainties abound in the eurozone this year. In addition to the French election in April/May, there are national polls taking place in the Netherlands next month and Germany in the autumn. In light of last year's vote in Britain to leave the European Union and Donald Trump's victory in the U.S. presidential election, there are concerns that a populist tide may sweep continental Europe, too.

Given the uncertainties, few in the markets think the European Central Bank will soon end to its stimulus efforts to revive the eurozone economy.

Economic indicators are clearly moving in the right direction, not least on the inflation front. One of the reasons the ECB has slashed interest rates and pursued a huge bond-buying stimulus program is to get inflation back toward its target of just below 2 percent.

But while consumer prices rose by 1.8 percent in the year through January, that was mainly due to external factors like higher energy costs. Policymakers will want evidence that underlying inflation is on the rise and so far the official data provide scant evidence of that.

Tuesday's survey from IHS Markit showed that price pressures are building, though firms appear to be reluctant to pass on the full scale of the rise in their costs.

"The ECB will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year," said Williamson.

"No change in policy therefore looks likely until at least after the German elections in September."