World Economy

EU Enters Q2 With Robust Growth

Signs the economy is on a sustainable growth path, alongside inflationary pressures, will be welcomed by policymakers at the ECB
EU Enters Q2 With Robust GrowthEU Enters Q2 With Robust Growth

The eurozone economy started the second quarter with strong and sustainable growth, according to a survey that showed businesses increased activity at the fastest rate for six years as new orders stayed robust.

IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good guide to growth, climbed to 56.7 from March’s 56.4, its highest reading since April 2011. A reading above 50 indicates growth. That matched the most optimistic forecaster in a Reuters poll in which the median predicted a dip to 56.3.

“The strength of growth in the first quarter surprised us and this is even better. It’s very broad-based growth,” said Chris Williamson, chief business economist at IHS Markit. “There is a good outlook for the year—it looks like the upturn has legs. With numbers like these people are going to start edging up their forecasts.”

Williamson said the latest PMI data, if maintained, pointed to second-quarter economic growth of 0.7%, well above the 0.4% predicted in a Reuters poll on Thursday.

Signs the economy is on a sustainable growth path, alongside inflationary pressures, will be welcomed by policymakers at the European Central Bank, who have struggled for years to achieve either, despite ultra-loose monetary policy.

Suggesting the recovery will continue, a sub-index measuring new business only dipped to 55.8 from March’s six-year high of 56.2.

Firms in the bloc’s dominant service industry increased activity faster this month, with its PMI rising to 56.2 from 56.0, a six-year high. That was above all forecasts in a Reuters poll, where the median predicted no change.

To meet the growing demand, and indicating confidence about the months ahead, hiring remained vigorous. The employment index held steady at 54.4, its highest since November 2007.

Factories also had a good start to the quarter—the manufacturing PMI climbed to a six-year high of 56.8 from 56.2, surpassing all estimates in a Reuters poll. An index measuring output jumped to 58.0 from 57.5, the highest since April 2011.

Future output, which gauges what factories think they will produce, rose to 66.9 from 66.6. That matched the highest reading of the sub-index, started in July 2012, set in January.

France Leads, Germany Slows

Of the major eurozone economies, France led the pack this month as the country gets ready to vote in the first round of its presidential election on Sunday.

The French private sector expanded the most in almost six years in April, survey data from IHS Markit showed Friday. The flash composite output index rose to a 71-month high of 57.4 in April from 56.8 in March, Alliance News reported.

In the service sector, activity increased for the tenth time in as many months. Moreover, the rate of expansion accelerated to a 71-month high and was sharp overall.

The services Purchasing Managers’ Index rose unexpectedly to 57.7 in April from 57.5 in March. The reading was forecast to fall to 57.0.

Likewise, the factory PMI improved to 55.1 from 53.3 a month ago, while it was expected to drop to 53.1. Manufacturing output continued to rise markedly, and at the fastest pace in six years.

“The numbers provide further evidence that the French private sector remains resilient to political uncertainty around the upcoming presidential election,” Alex Gill, an economist at IHS Markit, said.

Meanwhile, Germany’s private sector grew at a slower pace in April as services shifted into a lower gear but factory activity remained high, a survey showed on Friday, suggesting Europe’s biggest economy is likely to carry its upswing into the second quarter.

Markit’s flash composite Purchasing Managers’ Index fell to 56.3 from 57.1 in March, which was a 70-month high. The April reading was a tick lower than the consensus forecast in a Reuters poll of 56.8 but still comfortably above the 50 mark that separates growth from contraction.

Growth in manufacturing remained broadly stable at 58.2 after 58.3 in March, the highest level in nearly six years. But the survey showed business activity in the services sector accelerated less strongly than expected in April, coming in at 54.7. IHS Markit economist Trevor Balchin said this could take the edge off the economy’s performance in coming months.

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