Buoyant French economy ahead of election a boon to eurozone

AP News
Posted: Apr 21, 2017 5:32 AM
Buoyant French economy ahead of election a boon to eurozone

LONDON (AP) — A buoyant French economy ahead of the presidential election has helped push economic growth across the 19-country eurozone to a six-year high during April, a survey showed Friday.

In a further signal that the region's economy has gathered pace at the start of the second quarter, financial information company IHS Markit said its purchasing managers' index — a broad gauge of business activity — rose to 56.7 points in April from 56.4 the previous month. That's the highest level since April 2011.

Anything above 50 indicates expansion, with the latest reading pointing to quarterly economic growth of 0.7 percent, which would be above the region's long-run average and at rates that would likely see further falls in the region's unemployment levels.

"Such strong growth, if sustained, will inevitably lead to upward revisions to economists' 2017 forecasts," said Chris Williamson, the firm's chief business economist. Most forecasters have penciled in eurozone growth of between 1.5 percent to 2 percent for this year — IHS Markit's April survey, if sustained through the year, would point to something more like 3 percent.

He said the "robust" growth is being seen in both manufacturing and services, with the former "clearly benefiting" from the weak euro, which has also lifted exports to six-year highs. The rise in employment that has accompanied the economic expansion is also shoring up the recovery by encouraging consumers to spend.

On a country basis, the firm found that France, the eurozone's second-largest economy, is doing particularly well with its PMI at 57.4. France is even outperforming Germany's, the region's biggest though both economies are growing at rates not seen in six years, the firm said.

"France's elections pose the highest near-term risk to the outlook, but in the lead-up to the vote the business mood has clearly been buoyant," Williamson said.

On Sunday, French voters go to the polls to see who will contest the second round of the presidential election on May 7. Opinion polls show a tight race, with centrist Emmanuel Macron and far-right leader Marine Le Pen widely expected to emerge as the front two. However, Thursday's deadly shooting of a policeman in central Paris may influence voting intentions.

Even excluding heavyweights France and Germany, IHS Markit found the eurozone's pace of expansion accelerating to a near ten-year high.

That broad expansion, coupled with a pick-up in inflation, has stoked expectations that the European Central Bank will soon start to consider easing up on its stimulus efforts. Still, few economists think that the ECB will announce any change at next week's policy meeting given that underlying inflation remains weak.

Ironically, the growth in the eurozone has helped cushion the British economy over the past few months, even at a time of uncertainty related to the country's exit from the European Union.

However, a survey in Britain suggested that the recovery seen since last June's Brexit vote is weakening. The Office for National Statistics found that retail sales in the country fell by a whopping 1.8 percent in March, reversing the previous month's 1.7 percent rise. Retail sales, a key constituent of British economic growth, fell by 1.4 percent during the first quarter, the first quarterly decline since 2013.

Kate Davies, the agency's senior statistician said price increases appear to be behind the retail sales reverse.

One major consequence of Britain's Brexit vote has been the sharp fall in the pound. Though that's helped exporters pick up business, it has pushed up inflation by raising the cost of imports such as food and energy.