Eurozone growth running at fastest rate since 2011

The rates of growth accelerated in all four major eurozone economies — Germany, France, Italy and Spain.
  • Last update: 3 March 2017 | 14:07

LONDON: The 19-country eurozone economy is growing at its fastest rate since 2011, according to a survey released Friday, but few economists expect the European Central Bank to ease up on its stimulus efforts anytime soon given political uncertainties that could derail the recovery.

Financial information company IHS Markit said its purchasing managers' index — a broad gauge of economic activity — spiked to 56.0 points in February from 54.4 the previous month. Anything above 50 indicates expansion and February's number was a 70-month high.

The firm said output growth was led by the manufacturing sector, though the services sector was strong, too. The rates of growth accelerated in all four major eurozone economies — Germany, France, Italy and Spain. Ireland, which is emerging from a banking crisis, recorded the strongest growth.

IHS Markit said the survey is pointing to robust quarterly economic growth of 0.6 percent across the eurozone and big job gains.

"The labor market is also starting to boom, with jobs being created at the fastest rate for nearly a decade," said Chris Williamson, chief business economist at IHS Markit.

A separate survey of retail sales, however, signaled some caution.

According to the European Union's statistics agency, Eurostat, retail sales fell by 0.1 percent in January from the previous month, with Germany and France leading the decline.

That was the third straight decline and suggests that higher inflation may be weighing on consumer spending. Figures released Thursday showed consumer prices rising at 2 percent annually, a four-year high, largely on the back of higher energy costs.

IHS Markit's survey suggested that firms are facing cost inflation at a 69-month high mainly due to higher purchase prices, increased staff costs and the weaker euro, which tends to make imports more expensive.

Given the broadly robust growth backdrop and rising inflation, there is some speculation that the European Central Bank will start to ease up on its monetary stimulus. Few, however, think the bank will signal such an intention at next week's policy meeting.

The general consensus is that the ECB will retain its current policy path given a raft of political uncertainties over the coming months — chief among these are elections in the Netherlands, France and Germany as well as the start of Britain's two-year discussions to leave the EU.

"It seems likely that central bank rhetoric will remain dovish in coming months, focusing on the headwinds that the economy faces in 2017, and specifically the need for policy to remain accommodative in the face of political uncertainty," said Williamson.

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