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Euro area posts best PMI figures for six years

Tuesday, 28 March, 2017 - 17:23

Economic growth in the eurozone is at a six-year high according to the latest PMI data published by the information services company IHS Markit. The composite PMI figure for March was 56.7, up from 55.4 in February beating the market expectation of 55.3. It marked the highest reading since April 2011.  Anything above 50 signals growth, with anything below 50 signalling contraction. The Purchasing Managers’ Index is a survey of 5,000 manufacturing and services companies in the eurozone based on economic indicators like new orders, production levels and employment outlook.

In both the manufacturing and services industries new orders are at a 71-month high following seven months of accelerating growth. The same is true for output in services; however, the rate of output in manufacturing fell slightly in March. The most standout figure from the survey was that of employment growth in the services sector which is at its highest for nearly a decade.

The positive results were largely driven by an uptick in the economic situation of the eurozone’s two largest economies, Germany and France. Both countries posted multiyear highs in output and new orders with German service sector jobs being added at the fastest rate in 20 years. France surprised by edging ahead of Germany in the PMI composite number (the weighted average of the manufacturing and services indices) posting a figure of 56.2 to Germany’s 56.1.

The rise in demand and employment is putting upward pressure on prices which reached a six-year high in March. This was exacerbated by the weak euro which made imports of food, oil and metals more expensive. With signs that inflation is on the rise observers’ attention will turn to the European Central Bank to see if it decides to follow the US federal reserve by raising interest rates. At its last meeting earlier this month the ECB said that it did not foresee any change to the interest rate for an ‘extended period of time’. However, commenting on the rise in prices noted in the report, Chris Williamson, Chief Business Economist at IHS Markit said:

“The PMI activity and price indices have moved well into territory which would normally be associated with the ECB tightening policy. Speculation may intensify that the central bank could risk falling behind the curve if growth continues to strengthen and inflation proves stickier than expected.”

“The acceleration in growth towards the end of the quarter, as well as improving trends in new business and an increased appetite to hire, suggest that strong growth momentum will be sustained into the second quarter,” he added.

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