Euro-Area Growth Accelerates on Path to Decade-Best Performance

The euro-area economy gathered pace in November to stay on track for its best annual performance since the financial crisis.

Companies in the 19-nation region boosted hiring at the fastest pace in 17 years to work through their backlog of orders. A survey showed business confidence in France surged to the highest in almost a decade, while a gauge for manufacturing in Germany surged to its best reading since early 2011.

Supported by ultra-low interest rates and asset purchases from the European Central Bank, the bloc has seen unemployment drop from a record and is enjoying its most synchronized expansion since before the single currency was founded. IHS Markit sees economic growth accelerating to 0.8 percent in the fourth quarter, the fastest rate in almost seven years.

“There are no signs of stopping the euro-zone economy at the moment and 2018 is likely to start on a strong footing,” said Bert Colijn, senior euro-area economist at ING Bank NV in Amsterdam. “With continued monetary support and some expected improvements in global growth in 2018, the euro-zone economy is set for another year of surprising growth.”

The European Commission raised its economic outlook in November, projecting expansions of 2.2 percent this year and 2.1 percent in 2018.

While the region has racked up 18 quarters of growth, the so-called “euroboom” looks modest compared with previous upswings in the U.K. and the U.S., according to Bloomberg economists.

That may not be a bad thing though. “Sustainable growth is less likely to result in a bust,” they said in a report this week.

A Purchasing Managers’ Index for manufacturing and services in the euro area rose to a 79-month high of 57.5 in November from 56 in October, IHS Markit said on Thursday. French companies are particularly optimistic, stepping up hiring at the fastest pace in almost 17 years. A separate release from the national statistics office Insee showed sentiment among businesses at its highest level in almost a decade.

“The French economy is on a solid footing, and if anything highlights early upside risks” to our forecast for 0.5 percent growth in the fourth quarter, Francois Cabau, an economist at Barclays in London, said in a note to clients.

The country is enjoying its best streak of growth in more than six years as President Emmanuel Macron presses ahead with reforms intended to revamp the economy. The expansion is benefiting from tax cuts pushed through by the previous government and a broader recovery in the rest of the 19-nation currency bloc.

In Germany, where unemployment is already at a record low, companies continued their hiring spree as a growing backlog of unfinished work strained their capacity to the limit. That suggests the economy will sustain its strong momentum from the third quarter, when output was bolstered by exports and investment, as political uncertainty weighs on Europe’s biggest economy after coalition talks collapsed. Gross domestic product expanded 0.8 percent in the three months through September, a separate report showed on Thursday.

As they worked through the highest level of unfinished output in more than a decade, companies in the euro area increased prices for goods and services by the most since June 2011, IHS Markit said. The ECB will likely welcome the sign of emerging inflation as policy makers prepare to phase out monetary stimulus.

“The message from the latest euro-zone PMI is clear: business is booming,” said Chris Williamson, chief business economist at IHS Markit.
Source: Bloomberg

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