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Eurozones economy shows resiliency!

Eurozone

Business across the Eurozone has exhibited buoyancy as firms are hiring a greater number of people. This is despite the political uncertainties that lie ahead, including the high-stake French presidential election. A review of 5,000 companies has revealed that business activity is growing at the fastest pace in the last 6 years. The PMI corroborates this and Eurozone PMIfurther states that both manufacturing and service sector firms have registered new order bookings, while optimism has reached a peak. Pricing pressures reported having intensified to a 6 year high, which is in line with EU central banks strategy to ward off potentially deflationary cycles. The Markit Eurozone PMI rose to 56.7 in March, which is indicative of heightened and expansionary economic activity. This is a month on month increase, averaging 55.7 during the first quarter of 2017 and highest since the first quarter of 2011. The good thing about this data is that it is broad-based, and growth has been recorded in both manufacturing and services sector. For example, services sector accelerated at the highest over the last 5 years, and manufacturing growth output has also remained in the healthy expansionary zone, even though it eased from the February six-year peak. Another important aspect of this data is that the employment data was also heartwarming and showed the largest monthly improvement since July 2007, as firms have targeted to enhance their capacity as downstream demand has recovered. This, in turn, has allowed firms to raise prices, which signals that policies enacted by Mario Draghi, slowly but surely, are paving a correct way.

HIS Markit economist, Chris Williamson remarked that while the mood in France and across much of Europe is optimistic; however, French “elections remain a worry.” There could be tangible actions by the ECB to stem back its historically easy monetary policy, strategized by an asset purchase program and negative interest rate. But they may seek more consistent readings before taking stepping back and could prolong the current program to a latter part of the year while continuously apply a taper. Obviously, it does not need underscoring that the ECB would continue monitoring the underlying inflation, to shape their future decisions. However, if inflation would spike in an unbridled manner, there is a strong possibility for the ECB to act more hurriedly. Lawmakers are speculating potential rate hikes ensuing just after the conclusion of the asset purchase program. This potentially means that there would be arbitrage opportunities on the side of Euro currency, which may shrug off the long-term bearishness implications engulfing it. Surely, this would be a time taking manifestation, but indications lead to that conclusion.

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