Eurozone economy growing at fastest rate in six years

IHS Markit said its purchasing managers' composite output index rose to 56.8 points in April from 56.4 the previous month

May 4, 2017
The Canadian Press
The Canadian Press

LONDON—European stocks got a sizeable lift May 4 after centrist French presidential candidate Emmanuel Macron was widely perceived to have gotten the better of the far-right’s Marine Le Pen in a televised debate and a survey showed economic growth in the 19-country eurozone striking a six-year high.

Financial information company IHS Markit said its purchasing managers’ composite output index—a broad gauge of economic activity—rose to 56.8 points in April from 56.4 the previous month. The reading was at its highest level since April 2011 and a tad ahead of the earlier estimate. Anything above 50 indicates expansion.

Chris Williamson, the firm’s chief business economist, said the survey portrays “an economy that is growing at an encouragingly robust pace and that risks are moving from the downside to a more balanced situation.” He said it’s consistent with quarterly growth of 0.7 percent. If sustained through May and June, that would mean a marked pick-up from the 0.5 percent growth recorded in the first quarter.

Economic growth appears to be broad-based across manufacturing and services and across countries. The big two eurozone economies, Germany and France, are growing at around a 0.7 percent rate, Williamson said. Elsewhere, he noted that Spain and Ireland are expanding at an even faster rate and that Italy appears to be heading in the right direction following years of stagnation.

“The encouraging picture from the survey data is likely to help raise many forecasters’ expectations of eurozone economic growth in 2017,” Williamson said.

He also said it will “no doubt add to speculation” that the rhetoric coming out of the European Central Bank will “turn increasingly hawkish.”

Market expectations are growing that the ECB could soon start reining in its bond-buying stimulus program, especially if the more euro-friendly Macron wins Sunday’s French presidential election against Le Pen. Many in the markets think a Macron victory is more likely now following a television debate on May 3—shares across Europe have rebounded strongly, with the CAC 40 in Paris up 0.7 percent and the euro 0.4 percent firmer against the dollar at $1.0920.

“While Le Pen was widely seen as being better suited to the event, it is Macron that is believed to have fared better in the scathing encounter, helping to protect his substantial lead in the process and ease concerns about a late surge by the National Front leader,” said Craig Erlam, senior market analyst at OANDA.