Eurozone manufacturing sector growth hits record

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http://maltawinds.com/2018/01/03/eurozone-manufacturing-sector-growth-hits-record/

European factories have reported their strongest month since before the creation of the euro, capping off a much better than expected year for businesses in the single currency area. The eurozone manufacturing purchasing managers’ index in December hit 60.6, its highest level since surveys began in mid-1997, according to figures released on Tuesday.

Any figure above 50 indicates expansion over the month. The figures confirmed earlier “flash” estimates, which suggested the sector had recorded its best annual performance on record, while new national-level data pointed to broad-based growth across the continent. Businesses in Germany, Ireland and Austria all reported record growth, while Greece enjoyed its best results for nearly a decade.

The fresh signs of economic strength helped push the euro close to a three-year high on Tuesday morning. The single currency climbed 0.6 per cent to $1.2082, its second-highest level since January 1 2015. The euro was helped by a broader weakness in the US dollar, but it also gained 0.4 per cent against the pound. The PMI surveys question businesses on indicators such as new orders, pricing and employment growth in order to gain a picture of the overall health of a sector, and are seen as useful early indicators of economic growth.

Europe’s economy consistently beat expectations throughout 2017, leading economists and policymakers to increase their growth forecasts substantially. The European Central Bank now expects the eurozone economy to have expanded by 2.4 per cent in 2017, compared with estimates of just 1.7 per cent at the start of the year.

Chris Williamson, chief business economist at IHS Markit, which compiles the PMI surveys, said he was particularly encouraged by responses from producers of goods such as machinery, which point to an “upswing in business investment”. Mr Williamson said “higher investment should help boost productivity and profits, and therefore enhance the sustainability of the upturn”. There were also further signs that the ECB’s long-sought uptick in inflation could soon materialise. Survey respondents said inflationary pressures were “elevated” as the long run of growth put increasing pressure on supply chains.

Inflation in the eurozone has fallen back in recent months after briefly hitting the ECB’s target of close to 2 per cent. The central bank expects headline rates to continue falling in the coming months, but president Mario Draghi has stressed his “patience” to wait for price growth to return. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said there was a risk that the sector could begin to overheat after such a long rally, noting that “we have to worry that the rate of ascent will stall soon”.

However, he said that in the short term the surveys “point to sizzling hard data in coming months”. The UK’s PMI fell to 56.3 in December from 58.2 in the previous month, well below the consensus estimate in a Reuters poll of 58.3.