Europe’s Economy Humming Again

The European economy is humming again—except for Britain, where fears about the effect of the country's exit from the European Union are taking an increasingly heavy toll on business and consumer confidence.

Factories in the eurozone rounded off the first half of 2017 by ramping up at the fastest rate for over six years, according to closely-watched purchasing manager indexes released Monday by the research firm IHS Markit. Meanwhile, Asia's tech-manufacturing economies were helped by growing global demand for electronics products, it said, Fortune reported.

June's manufacturing PMI for the eurozone rose to 57.4, its highest since April 2011 and up from May's 57.0. Suggesting the bloc's momentum will continue into the second half, new orders rose at the fastest rate since early 2011, backlogs of work increased at the fastest pace in over 13 years, raw materials were depleted and factories increased headcount at a near-record pace.

The upturn was particularly strong in France and Italy, but German business confidence (as measured by the respected Ifo think-tank) hit an all-time high in June.

Optimism Rises

“There’s no sign of the impressive performance ending any time soon," said IHS Markit's chief business economist Chris Williamson. "Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand."

Fears that France would elect a right-wing nationalist as president promising to pull the country out of the EU's single currency project had weighed on opinion in the first months of the year, but were dispelled by the crushing victory of the centrist and pro-EU Emmanuel Macron as president in May–a feat repeated by his party La Republique en Marche last month. By contrast, political uncertainty took a turn for the worse in the UK last month after a snap election left the country with a minority Conservative government.

Macron’s signature economic promise is to slash France’s nonwage costs, in particular by radically slimming its state pension systems. Macron thinks that could cut €500 ($550) off the annual cost of employing someone. He has also vowed to give more freedom to companies negotiating wage deals with labor unions, to restore tax benefits on overtime, and to encourage social mobility by subsidizing the hiring of people from France’s most deprived areas.

May Under Heavy Pressure

When Prime Minister Theresa May called a snap election in April, polls showed that she would win a big mandate for her high-risk Brexit strategy—which entailed leaving the EU’s Single Market and its customs union in two years flat, even, if need be, without negotiating any future trading arrangements.

But her electoral gamble backfired spectacularly after voters went to the polls in June. Her Conservatives lost their slim majority in parliament and are now hanging on to power only with the support of the fundamentalist Protestant Northern Irish Democratic Unionist Party. Her authority in tatters, May is now under pressure from all sides.

British manufacturing grew more slowly than expected as consumers faced the double-hit of accelerating inflation—caused in large part by the fall in the pound since last year's vote to leave the EU—and by slowing wage growth. The UK PMI fell to 54.3 from a downwardly-revised 56.3 in May, a three-month low and below all forecasts in a Reuters poll of economists that pointed to a reading of 56.5. A reading above 50 indicates growth.

EU Jobless Rate at Its Lowest

Further signs of the strengthening economy came elsewhere, as official data showed the Eurozone's jobless rate holding at its lowest since 2009, at 9.3% of the workforce, after a 5,000 drop in new jobless claims. A year ago, the jobless rate had stood at 10.2%.

The strengthening economy is increasingly letting factories raise prices, welcome news for policymakers at the European Central Bank who have been battling for years to get inflation back to their 2% target ceiling. Inflation was a stronger-than-expected 1.3% in June, official flash data showed on Friday, and while still below target, recent strong economic data meant ECB chief Mario Draghi last week raised the prospect of policy tightening.