EU Growth Gains Momentum
Leading economic data released last week indicate that European economies were accelerating as 2016 drew to a close. The political uncertainties facing the region, including elections in France, Germany, and the Netherlands, along with the opening of Brexit negotiations, apparently has not dampened business and consumer optimism. Investors have been more hesitant because of the risks, but over the last month, the iShares MSCI Eurozone ETF surged to a 6% total return gain.
The good economic news was widespread. The Markit Eurozone Manufacturing Purchasing Managers’ Index registered 54.9 for December, its highest level since April 2011, with manufacturing PMIs higher in all eurozone countries surveyed except Greece. The surge in production was accompanied by rising price pressures, Seeking Alpha reported.
The depreciation of the euro is believed to be the main factor behind these developments. Service sector growth in the eurozone was also strong in December, close to November’s 11-month high. Overall, the Composite PMI (manufacturing plus services) expanded at the quickest pace since May 2011. It is therefore not surprising that, according to the European Commission, eurozone economic confidence reached in December its highest level since March 2011.
Turning to the largest economy in the eurozone, Germany’s Manufacturing PMI registered strong growth in December, the highest in nearly three years, with improving business conditions. Germany’s service sector experienced a slight easing in business activity but remained robust. Germany’s Composite PMI reached a 5-month high.
France’s Manufacturing PMI reached a 67-month high in December; and with rising growth in the service sector over the last six consecutive months, the Composite PMI for France reached an 18-month high. French companies reported the strongest optimism since March 2012. In addition to the weaker euro, the nomination of market-friendly Francois Fillon as the conservative candidate in France’s presidential election likely contributed to this optimism.
Further south, Italy’s Manufacturing PMI registered its strongest growth in six months, which is impressive in view of the political uncertainties and banking sector difficulties in that country. Service sector activity also continued to rise but at a slower rate, which caused the Composite PMI to register slower growth in overall output compared with November’s 9-month high.
Finally, in Spain, manufacturing performance continued to strengthen in December, with the Manufacturing PMI advancing at its fastest pace since January 2016. The same was the case for new orders. Service sector growth has remained broadly at the strong pace reached in December. Spain’s Composite PMI attained a six-month high in December. Over the past year, Spain created jobs at the highest pace in the last ten years.