France Fires Up Eurozone Economy Ahead of Presidential Elections

Date : 21/04/2017 @ 11:17
Source : Dow Jones News

France Fires Up Eurozone Economy Ahead of Presidential Elections

By Paul Hannon 

A gauge of activity in the eurozone's manufacturing and services sectors rose to a six-year high in April, aided by a pickup in France ahead of presidential elections set to start Sunday.

Data firm IHS Markit Friday said its composite Purchasing Managers Index for the eurozone, based on a survey of 5,000 companies, rose to 56.7 in April from 56.4 in March, reaching its highest level since April 2011. A reading above 50.0 signals an increase in activity, while a reading below signals a decline.

The measure was stronger than economists had expected, largely because activity in France avoided the predicted slowdown as an unpredictable vote approached. According to opinion polls, any two of four candidates could contest a runoff to be held next month. The candidates have unusually diverse views on economic policy and France's relationship with the European Union, with some advocating a departure from the bloc.

"Given the emergence of what has increasingly looked like a four-horse race to get through to the second round, and the possibility of some 'ugly' outcomes as a result, this is a remarkably positive set of PMI data," said Ken Wattret, an economist at TS Lombard.

By contrast, activity slowed in Germany, the only eurozone economy larger than France.

The eurozone survey suggests that an acceleration in economic growth during the first quarter has continued into the second. A separate survey released Thursday by the European Commission found that, with the exception of one month in early 2015, consumers are more optimistic about their prospects than at any time since mid-2007 more than a year before the start of the global financial crisis.

IHS Markit said that in the past, the April reading has been consistent with quarter-to-quarter growth of 0.7%. That would be a step up from the 0.6% growth rate indicated by the surveys for the first quarter, and the 0.4% growth rate recorded by official data for the final three months of 2016.

The survey suggests that higher rate of growth is likely to be sustained over coming months, with new orders flowing strongly and businesses hiring workers at the fastest pace since July 2007.

Policy makers at the European Central Bank have grown more confident about the currency area's economic outlook since the end of last year, when most economists had expected growth to be unchanged, at best, this year compared with 2016.

For much of the four years of the current expansion, the ECB has stressed that the currency area's growth outlook has faced "downside risks," indicating that it has seen a greater prospect of a slowdown than an acceleration. As a group, they have yet to drop that view, though some appear close.

"Once clarity emerges on the political front, we would expect the focus to shift quickly to the ECB's potential course of action as it might be running out of excuses to worry about downside risks, too," said Julien Lafargue, European equities strategist at J.P. Morgan Private Bank.

ECB policy makers remain reluctant to consider an early removal of the stimulus they have been providing to the recovery since mid-2014, expecting underlying inflation to build only slowly to their target as the recovery gradually reduces still-high rates of unemployment and other spare capacity.

Their caution may well be confirmed by the surveys of purchasing managers, which found that the prices charged by businesses rose at a slower pace than in March.

Write to Paul Hannon at paul.hannon@wsj.com

 

(END) Dow Jones Newswires

April 21, 2017 06:02 ET (10:02 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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