All economic indicators have shown a steady improvement in the Eurozone. Taking the Eurozone Manufacturing PMI in view we see that at 55.2 in January, marks improvement in business manufacturing conditions. This level is a 69-month high and above an earlier flash estimate of 55.1. Such a reading is also indicative of fastest job creation since the beginning of 2011. Seasonally adjusted GDP also rose by 0.5% in Euro Area (EA 19), which is a YoY increase of 1.8%. While activity increased appreciably as indicated by the Markit PMI data, manifesting itself in a slowly improving GDP rate, unemployment rate still remained rather recalcitrant edging down by only 0.1% to 9.6% in December from 9.7% a month earlier. This gradual decrease is evident by the fact that the unemployment rate is coming down slowly from the 10.5% mark in December 2015. The Markit PMI data also seems to be in line European Commission data, which has posted that capacity utilization increased by 0.2 points to 82.5% However, the commission also stated that managers seemed content with their current level of production capacity, while their external outlook on exports decreased by 0.9 points. However, their appraisal of developments on new orders and production booking steadily edged up by 0.1 basis points. This was the result of an improvement of their competitive position in the foreign market as capacity utilization was above the all important 80% mark which is correlating well with Markit PMI manufacturing data, that is pointing to an expansion in the economy.
There has been an uptick in industry confidence, as manager’s expectations of past production worsened as their views on export order prospects improved as reported by the European commission. The commission also enumerated that consumer confidence was slightly more upbeat with regards optimistic unemployment and savings expectation that seemed to outweigh worsened expectations. Between the potpourri of financial and economic data Euro area inflation posted a slight increase to 1.8% in January 2017, up from 1.1% in December as reported by Eurostat. However, the inflation appeared to be on the consumer staple side of the business i.e. energy followed by food, alcohol, and tobacco and not driven by consumer discretionary which would be considered a better litmus on how well the economy is performing. Overall, in January the Economic Sentiment Indicator remained broadly stable in the EU at 108.5.
Mario Draghi’s contends that main risk emanates primarily from global economics while major economies of Eurozone have been showing some sign of picking up. For example, the U.K. government is expected to invoke Article 50 in the upcoming months, which would initiate a 2-year exit process. Whether the negotiation process will be acrimonious, is yet unknown. In addition, there is a protectionist rhetoric coming out of the newly elected administration at the White House, and this would mean further re-aligning of trade objectives and trading partners. It shouldn’t come as a surprise that Mario Draghi remains rueful, yet pragmatic when he states that “the risks surrounding the euro area growth outlook remain tilted to the downside and relate predominantly to global factors.” It would take a panning out of a few global events before the mettle of an EU resurrection is fully tested, but the fundamental data does show that rebound is in the works, as feeble as it may seem for now.