Busi­ness growth in eu­ro­zone rises to high­est rate this year ECB likely to ease mone­tary pol­icy

Kuwait Times - - BUSINESS -

Eu­ro­zone busi­ness ac­tiv­ity ex­panded the most in nearly a year in Novem­ber on strong man­u­fac­tur­ing and buoyant ser­vices growth in Ger­many, stir­ring some op­ti­mism that eco­nomic mo­men­tum is pick­ing up again.

A strong run of data is offers some hope a mid-year lull after a flurry of ac­tiv­ity at the start of the year may be over, It is un­likely, how­ever, to dent ex­pec­ta­tions the Euro­pean Cen­tral Bank will an­nounce an ex­ten­sion to its stim­u­lus pro­gram next month. The IHS Markit Euro Zone Flash Com­pos­ite Pur­chas­ing Man­agers’ In­dex jumped to 54.1, its high­est so far this year, from 53.3 in Oc­to­ber, just shy of 54.3 last De­cem­ber.

It is now well above the 50 that di­vides growth from con­trac­tion, sug­gest­ing 0.4 per­cent growth in the fourth quar­ter ac­cord­ing to IHS Markit, slightly higher than the me­dian fore­cast in a Reuters poll of 0.3 per­cent. Ser­vices firms in Ger­many and France, the bloc’s top two economies, fared bet­ter than man­u­fac­tur­ers. In the broader eu­ro­zone sur­vey, how­ever, man­u­fac­tur­ers had a stronger run.

Taken to­gether, the data sug­gest the pickup in ac­tiv­ity is not con­fined to Ger­many and France. “It looks like smaller economies are pick­ing up pace after a very long time and down­ward price pres­sures are some­what abat­ing with com­pa­nies manag­ing to push through price in­creases,” said Peter Van­den Houte, chief eu­ro­zone econ­o­mist at ING Fi­nan­cial Markets.

“But I’m not sure the ECB will shift gear very rapidly for the sim­ple rea­son that it has made mis­takes in the past by tight­en­ing pol­icy too soon. We still ex­pect the ECB to lengthen its quan­ti­ta­tive eas­ing pro­gram in De­cem­ber.” The ECB next meets on Dec. 8 and econ­o­mists polled by Reuters last week ex­pect it to an­nounce an ex­ten­sion to its 80 bil­lion eu­ros a month bond pur­chase pro­gram that is cur­rently sched­uled to end in March 2017.

De­spite years of ul­tra-loose mone­tary pol­icy, in­clud­ing print­ing money, cut­ting in­ter­est rates be­low zero and giv­ing banks vir­tu­ally free cash, in­fla­tion has only risen in baby steps in the eu­ro­zone.

At 0.5 per­cent in Oc­to­ber, it is still far be­low the ECB’s 2 per­cent tar­get ceil­ing. But if the trend of tight­en­ing price pres­sures, as in­di­cated by the PMIs, con­tin­ues it could dampen ex­pec­ta­tions of fur­ther pol­icy eas­ing from the ECB. Out­put prices for ser­vices firms in the eu­ro­zone re­mained un­changed in Novem­ber, only the sec­ond time in the past 14 months when com­pa­nies did not re­sort to dis­count­ing to drum up new busi­ness. “This most likely re­flects the year-over-year in­crease in en­ergy prices that fell sig­nif­i­cantly one year ago,” said Hol­ger Sandte at Nordea. “(But) the un­der­ly­ing cost and price pres­sure is still very low and a rea­son for the ECB the main­tain the cur­rent de­gree on mone­tary ac­com­mo­da­tion for a long time.”

The bloc’s dom­i­nant ser­vices in­dus­try also per­formed much bet­ter than ex­pected, smash­ing even the high­est fore­cast in a Reuters poll. Sim­i­lar to the com­pos­ite num­ber, its PMI came in at a 11-month high of 54.1, up sharply from Oc­to­ber’s 52.8.

The fac­tory PMI climbed to 53.7, its high­est since Jan­uary 2014, above the poll me­dian and Oc­to­ber’s 53.5. The PMI sur­veys were con­ducted after the US elec­tion but IHS Markit said pan­elists had yet to fac­tor into re­sponses Don­ald Trump’s shock vic­tory, whose cam­paign hinged on trade pro­tec­tion­ism and mi­gra­tion curbs. So far there has been very lit­tle dis­cernible re­ac­tion in both in the eu­ro­zone and UK economies from Bri­tain’s shock vote to leave the Euro­pean Union in June. Most econ­o­mists agree, how­ever, that the im­pact will be felt more clearly next year. The busi­ness ex­pec­ta­tions in­dex in the euro zone ser­vices PMI dipped slightly this month com­pared with the six-month high it hit in Oc­to­ber.

There are also three key na­tional elec­tions in the eu­ro­zone next year, which may in­ter­fere with the even­tual ne­go­ti­a­tions be­tween Bri­tain and the EU on a di­vorce, pro­vided UK Prime Min­is­ter Theresa May fol­lows through on her in­ten­tion to trig­ger the pro­ceed­ings by March next year. —Reuters

This file photo taken on Novem­ber 17, 2014 shows a copy of La Mar­seil­laise news­pa­per at a print­ing house. La Mar­seil­laise, a left-wing news­pa­per founded dur­ing the Re­sis­tance, an­nounced yes­ter­day it was fil­ing for bank­ruptcy and hoped for re­ceiver­ship. —AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.