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With previous laggards such as Ireland and Italy showing momentum, there’s renewed belief that the currency bloc  has got past its debt crisis and is in a growth cycle.
With previous laggards such as Ireland and Italy showing momentum, there’s renewed belief that the currency bloc  has got past its debt crisis and is in a growth cycle.

Eurozone Optimism and Growth Seen Across Countries

The ECB has made clear it expects headline inflation to be weak in the coming months reaching 1.4% year on year in December

Eurozone Optimism and Growth Seen Across Countries

The 19-country eurozone economy closed out 2017 growing stronger than at any time in nearly seven years and optimism about the year ahead remaining buoyant, according to a closely watched survey Thursday.
Financial information company IHS Markit said that its purchasing managers index—a broad gauge of business activity across manufacturing and services—spiked to 58.1 points in December from the previous month’s 57.5. Any reading above 50 indicates growth and December’s level was the highest since February 2011, pointing to impressive quarterly economic growth of 0.8%, AP reported.
The eurozone economy gained momentum over 2017 as a series of headwinds that had previously capped growth and optimism eased. Most notably, populist leaders hoping to ride the anti-establishment sentiment that led to Brexit and Donald Trump’s presidential victory in the US failed to win elections in France and the Netherlands.
“A stellar end to 2017 for the eurozone rounded off the best year for over a decade, continuing to confound widely-held fears that rising political uncertainty would curb economic growth,” said Chris Williamson, the firm’s chief business economist.
What’s particularly encouraging for the eurozone, which has spent much of the past decade in crisis mode, is that the growth is broad-based across countries and not just isolated to powerhouse Germany.
With previous laggards such as Ireland and Italy showing momentum, there’s renewed belief that the currency bloc has got past its debt crisis and is in a growth cycle that will cut into unemployment. Hiring is running at a 17-year high rate, according to IHS Markit.
“New work is flowing to companies at a rate not seen for a decade and backlogs of uncompleted work are rising sharply,” Williamson said.

Brexit Uncertainty
The eurozone’s improving growth has helped shore up the British economy amid the uncertainty of Brexit. The country is due to leave the EU in March 2019, a development that raises countless issues surrounding the future of the British economy.
In a survey of Britain’s key services sector Thursday, IHS Markit, in conjunction with the Chartered Institute of Purchasing and Supply, showed UK growth lagging the eurozone’s. Though the survey index rose to 54.2 in December from 53.8 the previous month, it points to fourth quarter UK economic growth of 0.4%, half the eurozone’s predicted rate.

Inflation Below Target
Inflation in the eurozone slipped further away from the European Central Bank’s target in December, highlighting the challenge facing the bank as it looks to maintain price rises while winding down its quantitative easing program this year.
Average consumer prices rose 1.4% year on year in December, down from 1.5% in November and in line with consensus forecasts. Volatile energy, food and tobacco prices were the main drivers of the decline, with inflation in services remaining steady and industrial goods picking up slightly.
The ECB has made clear it expects headline inflation to be weak in the coming months thanks largely to the impact of earlier rises in energy prices falling out of year-on-year calculations. However, Friday’s data showed core inflation also struggling to rise, remaining steady at 0.9%.
However, separate data on factory gate prices provided one potential area for optimism. Producer price inflation over the month of November was twice as strong as expected, at 0.6%, bringing the year on year rate to 2.8%. PPI tracks changes in the prices of goods bought and sold by manufacturers, and can be used as an early gauge of inflationary pressures that may be passed on to consumers later.
“There is no great pressure on the ECB to unwind QE,” Kenneth Broux, a market strategist at Societe Generale, said.
The slight deceleration in headline inflation had been expected by the ECB and by market economists polled by Reuters.
But a stronger-than-expected German inflation reading of 1.6% last week raised market speculation about an upside surprise in eurozone price growth on Friday.
After the data the euro traded just below a four-month high of $1.209 hit on Thursday, consolidating a rally that may prove a headache to the ECB by making eurozone imports cheaper and exports dearer.

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