Eurozone manufacturing: Fresh data shows steady recovery

A weaker euro has helped boost exports. [Land Rover MENA/Flickr]

The year’s first economic numbers show encouraging signs that the eurozone’s economic recovery is steady and moving in the right direction, despite gloomy predictions.

Manufacturing expanded in December at its fastest pace since April 2011. Orders jumped, despite companies raising their prices due to increasing raw materials costs.

“Eurozone manufacturers are entering 2017 on a strong footing, having ended 2016 with a surge in production,” said Chris Williamson, chief business economist at IHS Markit which carried out the surveys.

“To put the PMI data into perspective, the five-and-a-half-year high reached in December is broadly consistent with factory output growing at an impressive annual rate of approximately 4%.”

The survey of companies’ purchasing managers showed growth was strongest in the Netherlands and Austria.

German manufacturing expansion reached its highest in almost three years, driven by rising demand from Asia and the United States.

France hit a five-and-a-half-year high. In Greece the contraction was at a slower rate.

A strong performance was also reported from Italy, where the index was 53.2 (well above the crucial 50 level). This will reassure investors, who have been worried by banking sector problems and a change in government following a failed referendum on constitutional reform.

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The data comes as a bonus after Ifo chief Clemens Fuest said he believed Italians will reject the euro currency and return to the Lira in 2017.

He told Germany’s daily newspaper Tagesspiegel: “The standard of living in Italy is at the same level as in 2000. If that does not change, the Italians will at some stage say: ‘We don’t want this eurozone any more’.”

German think tank: Italy risks quitting eurozone

The head of Germany’s Ifo economic institute believes Italians will eventually want to quit the euro currency area if their standard of living does not improve, he told German daily Tagesspiegel (1 January).

As a whole, firms across Europe raised prices at the fastest pace in over five years, linked to the weaker euro and more expensive commodities.

“Policymakers will be doubly pleased to see the manufacturing sector’s improved outlook being accompanied by rising price pressures,” IHS Markit’s Williamson said.

The new data comes as a good omen to calm fears of new turmoil in the Eurozone. A poll of fund managers by Bank of America Merrill Lynch in December found that the break-up of the eurozone was seen as the biggest tail risk for 2017.

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The European Central Bank would like to see inflation reach almost 2%. In a surprise move last month, the ECB cut asset purchases but promised protracted stimulus to aid a still-fragile recovery and bolster weak inflation.

The European Commission last November predicted that Europe’s economy would grow less than initially expected as domestic and global risks have intensified – mainly in the wake of the UK referendum and the increased opposition to globalisation.

Commission cuts growth forecast for both EU and eurozone in 2017

Europe’s economy will grow less than initially expected as domestic and global risks have intensified, mainly in the wake of the UK referendum and the increased opposition to globalisation.

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