France and Germany lead eurozone back to growth, with UK poised to benefit

Employment in Germany grows at near record level, with region’s PMI index at its highest level since 2011

FRANCE and Germany are leading a eurozone renaissance as the economy grows at its fastest pace in six years.

Hiring is surging across the services and manufacturing sectors as companies take on more staff to keep up with growing demand, according to IHS Markit’s purchasing managers’ index (PMI) surveys.

Employment is growing at a nearrecord level in Germany, the surveys showed, while French services companies in particular sought to take on new workers.

The eurozone’s PMI rose to 56.7, its highest level since 2011. Any score above 50 indicates growth, and three months of strong numbers indicate the economy is likely to have grown around 0.6pc in the first quarter of the year.

“The increasingly broad-based nature of the upturn also bodes well for strong growth to be sustained in coming months,” said Chris Williamson, IHS Markit’s chief business economist.

“Perhaps the best news came from France, where growth has risen above that seen in Germany, led by strengthening domestic demand. While elections remain a worry regarding the outlook, for now the business mood in France and across much of Europe is very positive.”

Such strong growth is also important because the core eurozone countries are now expected to grow more quickly than the UK, which should boost Britain’s economy with extra demand, particularly as the weak pound makes UK products more competitive overseas.

The cost of inputs is rising sharply on the Continent, particularly for manufacturing companies, with global commodity costs going up and pressures building inside the surging economies.

As the economy grows, unemployment falls and inflation picks up, economists believe the European Central Bank (ECB) will come under more pressure to bring its quantitative easing programme to an end. However, the ECB made a mistake when it hiked interest rates in 2011 just before growth fell back and the sovereign debt crisis struck. Therefore experts expect the central bank to wait a little longer to see if this surge in growth and inflation is sustained before taking any action.

“The PMIs clearly present some encouraging news for the region. But there is still slack in the labour market and wage growth is set to remain subdued for some time,” said Stephen Brown, at Capital Economics. “Moreover, the recent pick-up in inflation implies that consumer spending growth will slow this year. As such, policymakers at the ECB are likely to remain committed to their plan to continue with asset purchases throughout 2017.”